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San Francisco Real Estate Market Report (including 13 custom charts)

Monthly and seasonal fluctuations in median sales prices are quite normal and do not necessarily say much about changes in fair market values. For that one must look at longer-term trends. However, for what it is worth, the median price in February was the highest since it peaked in May of 2015. If this spring is like the past 4 springs in which a very-high-demand/ very-low-supply dynamic prevailed, then sustained home-price appreciation may start showing up in the statistics during the next few months.

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Chart: Median Price Trends since 1993

Chart: Case-Shiller Metro Area Home Price Index

We say this very preliminarily since the 2016 market has just gotten started after the holiday doldrums, but it appears that San Francisco homebuyers are generally shrugging off the recent volatility in the stock market. That doesn’t necessarily mean there will be a repeat of the overheated markets of the past few years. Much more will be known once the spring selling season really gets into full swing.

San Francisco Construction Boom Continues

Q4-2015_Pipeline_Under-Construction-Permitted-SubmittedDevelopers continue to add projects with thousands of new units to the San Francisco new-housing pipeline. If they are built as currently planned (as of Q4 2015), the city should add over 60,000 new housing units (market-rate condos and apartments, and affordable and social-project housing) over the next 5 to 6 years, with another 25,000 in 3 huge projects that may take decades to complete. However, new developments are being constantly added to the pipeline, and existing plans are regularly altered. They may even be abandoned if economic or political conditions dramatically change.

So far, increased supply due to completed new construction has not created significant downward pressure on prices. This may change as construction completion accelerates in coming years, however almost all of the market-rate development is directed toward the more (or most) expensive end of the condo and apartment market. House sales will continue to become a smaller and smaller percentage of the SF market, which may play a role in enhancing their values.

Our full article: San Francisco Housing Pipeline

Where to Buy a Home in San Francisco for the Money You Want to Spend

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The charts above are 3 of 8 in our updated report: San Francisco Neighborhood Affordability

Seasonality & the Spring Market

Overbidding by Month

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Luxury Home Listings Accepting Offers by Month

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The San Francisco real estate market is deeply affected by seasonality, which shows up in the rise and fall of inventory, buyer demand, overbidding and median prices. For the past 4 years, spring has experienced the most feverish buyer competition for new listings, which led to the highest overbidding percentages, as seen in the first chart above. (111% signifies an average sales price 11% over the asking price.) In February 2016, the percentage over list price started climbing again after the usual slowdown of the winter holidays.

The luxury home segment is even more dramatically affected by seasonality than the general market. As seen in the second chart above tracking accepted offers, expensive home sales typically soar to their high point in spring, drop during the summer holidays, rebound for the relatively short autumn season, and then plunge deeply in mid-winter. This ebb and flow of high-end sales is one of the factors behind short-term, seasonal ups and downs in median sales price. So far in 2016, luxury home closings have been comparable to early 2015, but we are just entering the main selling season now.

Our full overview: Seasonality & the SF Real Estate Market

Mortgage Interest Rate Trends

Short-Term Changes since the Fed Raised Rates

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Chart: Long-Term Interest Rate Trends

Since the Federal Reserve Bank raised the benchmark interest rate in mid-December, interest rates have actually dropped by about 8% (as of March 3), which makes a significant difference in monthly mortgage costs and loan underwriting qualification. This downward pressure on rates is generally ascribed to the dramatic volatility in the stock market since the year began. (Investors often pour money into bonds in times of stock market volatility, which then lowers the interest rate.) It is famously difficult to predict interest rate movements, which can be sudden and dramatic, but for the time being, they are getting closer to the all-time low in 2013. That is good news for the real estate market, while it lasts.

Bay Area Housing Affordability by County

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Chart: Long-Term Trends in Housing Affordability

Housing affordability is one of the biggest political issues in the city and the Bay Area. The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 4th quarter of 2015, and above are 3 of 10 charts in our updated analysis. San Francisco is now 3 percentage points above its all-time low of 8%, last reached in Q3 2007, however there has not yet occurred the convergence in extreme low affordability across Bay Area counties seen in 2007. Interest rates play a big role in affordability calculations and, as noted earlier, they have been falling in 2016.

Our full report: Bay Area Housing Affordability

San Francisco & U.S. Rents

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Chart: Long-Term SF Rent Trends

Despite ticking down a tiny bit at the end of 2015, San Francisco rents remain the highest in the nation. Since rents are not ameliorated by low interest rates and the numerous tax advantages pertaining to homeownership, new renters in the city bear the worst brunt of the housing affordability crisis, even more so than new homebuyers. A number of large, new rental apartment buildings have recently been coming on the market and many more are planned. This new inventory may eventually help provide significant rental-rate relief, however almost all the market-rate projects being built feature luxury apartments priced at the very high end: New studio units can rent for $3500 per month and more. read more →

San Francisco Median Condo Price Appreciation 2011 to 2015, by Neighborhood

Median sales price is a very general statistic, often concealing an enormous variety of values in the underlying individual sales. It can be and often is affected by other factors besides changes in fair market value, such as changes in the inventory available to purchase, and major changes in the distressed property, luxury home, or new condo construction segments. Sometimes median prices fluctuate without any great significance: substantially different groups of homes (larger, smaller, older, newer, etc.) simply sold in different periods. Assessing appreciation by changes in dollar per square foot values, instead of by median sales prices, can sometimes deliver significantly different appreciation rates.

Below the charts is a table with a more comprehensive list of San Francisco neighborhoods, and at the bottom of the page is a neighborhood map.

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The neighborhoods on the table below are grouped by San Francisco Realtor District, some of which contain neighborhoods of relatively similar values and some with highly variable home values.

Generally speaking, the higher the number of sales, the more reliable the statistics: We’ve usually calculated appreciation rates for neighborhoods with at least 24 sales in 2015, but these should still be considered very approximate.

An asterisk signifies a very low a number of annual sales and/or our suspicion that the appreciation calculation would not reflect market reality due to the variety of issues pertaining in the area. New, high-price condo projects can make sudden, dramatic impacts on neighborhood median sales prices in the year they go on market. In 2011, median sales prices in some areas were badly distorted by distressed property sales (bank and short sales) that didn’t represent fair market values. If either of these situations applies, the 4-year appreciation rate will jump higher in that neighborhood.

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We have also performed this analysis for San Francisco house values: San Francisco House Price Appreciation, 2011 to 2015

Our survey of the 2015 San Francisco real estate market: San Francisco Homes Market in 2015 read more →

San Francisco Median House Price Appreciation 2011 to 2015, by Neighborhood

Median sales price is a very general statistic, often concealing an enormous variety of values in the underlying individual sales. It can be and often is affected by other factors besides changes in fair market value, such as changes in the inventory available to purchase, and major changes in the distressed property, luxury home, or new home construction segments. Sometimes median prices fluctuate without any great significance: substantially different groups of homes (larger, smaller, older, newer, etc.) simply sold in different periods. Assessing appreciation by changes in dollar per square foot values, instead of by median sales prices, can sometimes deliver significantly different appreciation rates.

Below the charts is a table with a more comprehensive list of San Francisco neighborhoods, and at the bottom of the page is a neighborhood map.

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The neighborhoods on the table below are grouped by San Francisco Realtor District, some of which contain neighborhoods of relatively similar values and some with highly variable home values.

Generally speaking, the higher the number of sales, the more reliable the statistics: We’ve usually calculated appreciation rates for neighborhoods with at least 24 sales in 2015, but these should still be considered very approximate.

An asterisk signifies a very low a number of annual sales and/or our suspicion that the appreciation calculation would not reflect market reality due to the variety of issues pertaining in the area. In 2011, median sales prices in some areas, especially in the southern border neighborhoods of the city, were badly distorted by distressed property sales (bank and short sales) that didn’t represent fair market values. If this situation applies, the 4-year appreciation rate will jump higher in that neighborhood.

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We have also performed this analysis for San Francisco condo values: San Francisco Condo Price Appreciation, 2011 to 2015

Our survey of the 2015 San Francisco real estate market: San Francisco Homes Market in 2015

read more →

Sold: Easy City Living at Oceanview Terrace

3-8100Oceanview109 lr6

8100 Oceanview Terrace,
San Francisco California

Sold for at $469,000
Seller Represented

  • 1 Bedroom/1 Bath Condo
  • New Stainless Appliances
  • Fresh Paint Throughout
  • Open Plan Living
  • In-Unit Washer/Dryer
  • One Car Parking (space C13)
  • HOA Dues: $355.27
  • Year Built: 2002
  • 492 sq. Feet Per Tax Record

(more…) read more →

The San Francisco Real Estate Market in 2015

Architecture, views, probates, penthouses, lofts, TICs, luxury homes, mortgage rates, sales prices, market cycles, and everything else we could think of in a look back on 2015.

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Quarterly Median Price Chart & Monthly Case-Shiller Chart & Sales by Price Range Chart

Despite anxiety about interest rates, financial markets, housing affordability, unending international crises, and possibly over-valued, high-tech unicorns, the Q4 2015 San Francisco median house sales price, at $1,250,000, is up about 11% from Q4 2014. That dovetails nicely with the S&P Case-Shiller Home Price Index for the Bay Area, which measures appreciation in a different way, but also calculated 11% annual appreciation (through October, its last report). The Q4 condo median sales price, at $1,125,000, is up 13% year over year, but that is influenced by the greater percentage of more recently built, and more expensive, units in the sales mix.

We’ve also updated our popular price maps of San Francisco neighborhoods and the greater Bay Area: Home Price Maps

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San Francisco has seen 3 extended periods of home construction: The first ran from the Gold Rush to the 1906 earthquake, when 28,000 buildings were destroyed. The second went from the post-quake rebuilding, with the construction of thousands of Edwardian houses and multi-unit buildings, through the big WWII population surge. Many districts such as the Marina and Sunset/Parkside were built out in the period from 1920 to 1950, with Spanish Mediterranean (in many variations), Marina-style and Art Deco being common architectural styles.

The city’s population then went into major decline during the subsequent 3 decades and construction plunged. The third era of homebuilding is all about new condo construction, which began around 1980, ebbed and flowed dramatically with the economy, and is currently booming once again.

Early San Francisco Architecture

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A look at a few of the distinctive niches of the market.

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San Francisco is famously a city of gorgeous views. For the simple reason of verticality, more condos have views and, generally speaking, more panoramic and spectacular views, than houses. Many other lovely views add to SF home value as well: sweeping city views; park views; marina views; views of Alcatraz, Marin and Mt. Tamalpais; and of the East Bay and Mt. Diablo. A few lucky (typically, very affluent) condo owners have staggering vistas from the windows on all 4 sides of their high altitude units.

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After being bludgeoned in 2015 by thousands of articles, predictions and warnings regarding interest rates, here is a look at how much they actually changed over the course of the year: approximately one seventh of one percent. Per recent signals from the Fed, presumably mortgage rates will rise in 2016, but expectations over the last 6 years have been confounded far too often to be sure. Significant increases would certainly worsen the affordability equation for homebuyers financing their purchases.

10 Factors behind the San Francisco Market

Seasonality: Waiting for Spring

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The 2 charts above illustrate the extreme seasonality of the market, both in the numbers of new listings coming on market, and the percentage of listings that accept offers (a measurement of supply vs. demand). The second chart also shows that the market for homes under $2 million has been hotter than the luxury home market: There are fewer buyers at the ultra-high end, and luxury homes are also most prone to significant overpricing.

The spring selling season – which actually started in February last year – is typically the most feverish, and this is especially true for luxury homes: Notice, in the 2nd chart, the huge spike in demand for luxury homes last spring.

More statistical, supply and demand graphs: San Francisco Market Overview Analytics

Average Dollar per Square Foot Values

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High-end home sales hit new peaks in spring 2015, but with the stock market volatility in late August and September, the market softened, inventory increased (to its highest level ever) and sales dropped about 17% in October on a year-over-year basis. (Affluent buyers and sellers are most influenced by financial market volatility.) However, the stock market then recovered and stabilized in October and buyer confidence improved, which is reflected in the year over year increase in sales that occurred in November and December. Remember that closed sales in one month generally reflect the heat of the market  in the previous month, when the transaction was actually negotiated. Q4 2015 sales ultimately ended slightly up from Q4 2014.

Charts: Luxury House Sales by Neighborhood and Luxury Condo Sales by Neighborhood

Details, Amenities & Size

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The above details are as described in MLS by listing agents, so the numbers are very approximate. Also note that what most people might see as a unit above a laundromat, an enthusiastic listing agent might see as a “rarely available luxury penthouse.”

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One of the reasons the Pacific Heights district has by far the highest house prices in the city is that its average house size is so much larger. However, its mansions also command a very high dollar per square foot value, as seen in one of the earlier charts.

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The sales of condo shall continue to make up a larger and larger share of overall home sales in San Francisco, as new condo construction continues apace.(Condos also turn over more often than houses.) Very few new houses are built in the city – they are usually big, high-tech, beautiful and costly.

Where the Most Home Sales Occur

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San Francisco is very much a boutique market for multi-unit buildings: Our apartment buildings are generally much smaller, older and, for that matter, more gracious than those found in the suburbs. These properties are often at the heart of fierce controversies pertaining to rent control, tenants’ rights, tenant evictions, and condo conversion rules. There has been an immense increase in market-rate rents over recent years – SF is the most expensive rental market in the country– though rules restrict increases for existing tenants of buildings built before 1979 (i.e. almost all of our multi-unit properties).

The Bay Area Apartment Building Market

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The tenancy-in-common unit with an exclusive right to occupy, aka the TIC, is a property type rarely found outside of San Francisco. It was originally created as both a way to get sellers of multi-unit properties significantly more money – the individual unit sales adding up to more than the purchase of the entire building by one buyer – as well as providing a lower-cost alternative for homebuyers, since TICs typically cost 10% to 15% less than comparable condos. (The TIC phenomenon also generated significant legal fees for the lawyers who came up with the idea.) Because of changes in tenant-eviction law and condo-conversion rules, financing and other issues, the number of TIC sales has plunged since its peak in 2007. On the other hand, some TIC units are now selling for jaw-dropping prices: In 2015, 4 sold for over $5 million. The median TIC sales price last year was $947,000.

Map of San Francisco Neighborhoods

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Heading into the Holiday Slowdown after an Interesting Autumn Market

Median sales prices in October and November jumped back up to levels similar to the spring peak selling season. It’s important to remember that median prices are not a perfect reflection of changes in fair market value: They often fluctuate due to seasonal inventory and buyer-profile trends, as well as issues such as an influx of new-construction listings. It is the longer-term trend that is most meaningful – however we can say with confidence that there was clearly no significant “crash” in prices this past autumn.

Median_SFD-Condo_by-Qtr_Short-term

12-15_SP-OP_All-Sales_by-Month

One indication of the heat of the market is the extent to which sales prices are bid up over asking prices.As is not untypical, the market becomes less competitive in November as it heads into the winter holidays. Still, an average sales price 6% over asking price would be considered crazy-hot in any other market in the country (though one also has to adjust for the fact that serious underpricing has become a not uncommon listing strategy in the SF market).

Case-Shiller_High-Tier_since-2012_V2-bar-chart

This chart based on S&P Case Shiller Home Price Index data illustrates the seasonality of home price appreciation in the past 4 years: surging in our feverish spring selling seasons, and then generally plateauing through the rest of the year. Note that Case-Shiller looks at home prices in a totally different way than median sales price trends, and probably reflects changes in fair market value more accurately. Case-Shiller Index numbers refer back to a January 2000 value of 100, thus the current Index reading for higher-priced Bay Area homes of 217 signifies home prices 117% above January 2000.

As we enter the winter holiday market slowdown, the next real indication of the direction of the market will come in the first quarter of 2016. Will spring 2016 repeat the overheated, high demand/ low supply frenzies of previous springs or has the market finally reached a longer term plateau or an inflection point? We shall soon know more.

Our full report is here: S&P Case-Shiller Index for SF Metro Area

Unit-Sales_by-Price-Range-2015

n 2015 YTD, the dominant price segment for home sales in San Francisco was $1,000,000 to $1,499,000. As seen in the first chart above, the median sales prices for both condos and houses fall within this range. Note the change from just two years ago.

San Francisco Luxury Home Market

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The high-end home market is the most seasonal segment in the city (as well as the most sensitive to sudden, large, negative movements in the financial markets). Market activity starts to plunge in November, hits its nadir in December, begins to pick up in the first quarter and then usually hits its peak in spring. Much of the center of gravity in the luxury market has been shifting in recent years from the city’s prestige northern neighborhoods to other districts of the city, such as the greater Noe Valley area and the South Beach/Yerba Buena district. This is not to say that the northern districts are not still both very expensive and considered highly desirable, and the greater Pacific Heights area still dominates the market for the most expensive houses in the city, i.e. those selling for $5m and more.

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After the semi-hysteria – already half forgotten – that erupted in late August and September regarding the Chinese stock market and its impact on the U.S. stock market and economy, and possibly the Bay Area housing market, we thought it interesting to take a look back at how it has played out so far.

Average_30-Year_Mortgage-Rates

It is widely expected that the Fed will raise interest rates in December, probably by some minimal increment, but for the time being, as of the first week of December, rates have remained below 4%.

In November, we issued two mini-reports, one on Bay Area housing affordability and another on San Francisco new housing construction. Below are the featured charts and links to the full articles.

Affordability_Bay-Area-Counties_Chart

Bay Area Housing Affordability & Market Corrections

Q3-15_Pipeline-Net-New-Housing-Units_by-Stage

San Francisco New-Housing Pipeline Update

Information regarding San Francisco neighborhood prices and trends can be found here: San Francisco Neighborhood Values

Additional market analyses are here: San Francisco Market Reports read more →

San Francisco New-Home Construction

The SF Planning Department just released updated Q3 information regarding the new-housing development pipeline. San Francisco is in the midst of one of its biggest new-housing construction booms in history. (The same is occurring on the commercial development side, but this report won’t deal with that.) Indeed, it often seems that new projects of one kind or another are being announced on an almost daily basis, and a detailed map delineating all projects in some stage of the pipeline makes many city districts appear to have measles.

Q3-15_Pipeline-Net-New-Housing-Units_by-Stage Q3-15_San-Francisco_New-Housing_Pipeline-Map

New housing construction has lagged population pressures for decades – pressures which have soared during the current economic and employment boom – and now there is a scramble to address the inadequacy of housing supply, and, for developers/investors, to reap the rewards of a high demand/low supply dynamic in one of the most affluent and expensive housing markets in the world.

As of September 30th, there were approximately 59,000 housing units of all kinds – luxury condos, rental apartments, market rate and affordable units, and social project housing – in the relatively near-term pipeline (next 5 to 6 years). Most are in the Market Street corridor area, the Van Ness corridor just above Market Street, and in the districts to the southeast of Market Street (see map). If we add the mega-projects planned for Candlestick-Hunter’s Point, Treasure Island and Park Merced, which may take decades to become a reality, the number jumps to over 80,000. As a point of context, there are approximately 382,000 residential units in San Francisco currently. About 3500 new units were added in 2014.

Housing supply and affordability issues, strong feelings about neighborhood gentrification and tenants’ rights, and even simple NIMBYism (or in SF, NBMVism, “not blocking my view!”) make development the most contentious political topic in San Francisco. Furious battles are ongoing in the Board of Supervisors, the Mayor’s office and the Planning Department; with neighborhood associations and special interest groups; and at the ballot box. Development is not for the faint of heart or shallow of pocket: One cannot contemplate building virtually anything in the city without vehement opposition and sometimes a well-funded coalition in opposition. For developers, the equation to be penciled out includes high costs, enormous hassle-factor and extended project timelines on one side, and the potential for large financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, and 500 square foot studio apartments can rent for up to $3500 per month.

Of the units in the greater pipeline of 80,000 units, over 9000 units are designated as “affordable housing” – but about 5000 of those are in the long-term Candlestick-Hunter’s Point and Treasure Island projects. Because of the nature of the political environment, much to do with how much affordable housing will be built is in flux. Many developers are in intense negotiations with government agencies and neighborhood associations to find a workable compromise between return on investment on one hand, and unit mix and affordable housing requirements on the other. Said requirements may consist of a percentage of units in the project, building affordable units elsewhere in the city, or contributing substantial amounts to the city’s affordable housing fund in lieu of building.

New housing construction is very sensitive to major economic, political and even environmental events (i.e. natural disasters), so simply because something is in the pipeline doesn’t mean it will be completed as planned within the timeframe contemplated. First of all, plans are constantly being changed just in the normal course of things. And if a big financial or real estate market correction (or crash) occurs, as happened in late 2008, projects in process can come to a grinding halt, and new projects substantially altered, delayed or abandoned. Because the timeline in San Francisco can run 3 to 6+ years from initial filing with Planning to construction completion, developers and their lenders make enormous financial bets on what the future will look like. Timing is everything in real estate development, and can make the difference between large profits and bankruptcy. When the music stops – which it always does sooner or later, though the time range of opportunity can vary greatly – not everyone will find a chair to sit down in. That especially applies to those who over-leveraged their projects.

As a side note, big Chinese developers have been investing in both large residential and commercial real estate development projects in the Bay Area, and, according to reports, continue to aggressively seek additional opportunities. Though significant – constituting billions of dollars in investment – these projects do not constitute the greater part of Bay Area development. read more →

Housing Affordability and Market Corrections – Paragon Report

A look at San Francisco Bay Area housing affordability trends over time and how they intersect with real estate market corrections:

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The 2008 San Francisco Bay Area real estate crash was not caused just by a local affordability crisis: It was triggered by macro-economic events in financial markets which affected real estate markets across the country. It’s important to note that in the past, major corrections to Bay Area home prices did not occur in isolation, but parallel to national economic events. Ongoing speculation onlocal “bubbles” often neglect to remember this.

Still, dwindling affordability is certainly a symptom of overheating, of a market being pushed perhaps too high. Looking at the chart above, it’s interesting to note that the markets of all Bay Area counties hit similar and historic lows at previous market peaks in 2006-2007, i.e. the pressure that began in the San Francisco market spread out to pressurize surrounding markets until all the areas bottomed out in affordability. This suggests that one factor or symptom of a correction, is not just a feverish San Francisco market, but that buyers can’t find affordable options anywhere in the area. We are certainly seeing that radiating pressure on home prices occurring now, starting in San Francisco and San Mateo (Silicon Valley) and surging out to all points of the compass.

San Francisco, with a Housing Affordability Index (HAI) reading of 10% is about 2% above its all-time historic low in Q3 2007, but affordability in most other Bay Area counties, while generally declining, still remain significantly above their previous lows. By this measure, the situation we saw in 2007-2008 has not yet been replicated.

Significant increases in mortgage interest rates would affect affordability quickly and dramatically, as interest rates along with, of course, housing prices and household incomes, play the dominant roles in this calculation.

Note that Affordability ratios are just one relatively blunt measuring tool, and there are certainly other factors at play affecting our real estate market: local (high-tech boom; surging population, employment and wealth; inadequate housing supply, rental rates, etc.), national (financial markets, unemployment rates, consumer confidence, etc.) and, nowadays, even international economic factors (such as recent events in the Chinese stock markets and the EU).

Information on the methodology behind the California Association of Realtors’ HAI can be found here: www.car.org/marketdata/data/haimethodology/

Speaking of financial markets, we decided to take a look at how the recent volatility played out in the S&P 500 and the Shanghai stock indices. These indices are constantly fluctuating, but the general picture has not altered significantly since we graphed this in early November:

image002 read more →

Luxury Home Segment Cools Down “Affordable” Homes Market Remains Competitive

San Francisco led the Bay Area and the nation when its real estate recovery began in early 2012. Within the city itself, the more affluent neighborhoods led the rebound from the 2008 – 2011 recession and saw the highest rates of home price appreciation. That dynamic began to shift in 2014, when the more affordable neighborhoods began to take the lead in demand and in appreciation. All price segments in San Francisco have cooled off from the overheated frenzy of the spring 2015 selling season – this cooling is a common seasonal phenomenon – but while lower and mid-priced homes in the city have continued to remain solidly in “seller’s market” territory, in the luxury home segment, the dynamic between buyers and sellers has fundamentally shifted, at least for the time being.

A number of reasons may explain this: Firstly, the affluent are much more invested in the stock market than other groups, and the volatility of late August, early September may have encouraged more wealthy homeowners to sell (before things might possibly get worse), and more wealthy homebuyers to postpone buying until things clarified.As of very early November, the S&P 500 has regained its lost ground from August, so this effect may fade. Secondly, it’s certainly possible that sellers and listing agents have finally pushed the envelope on prices a little too far: San Francisco’s high prices have clearly motivated some buyers to look at options outside the city (which has helped pressurize the markets of other counties). Last but not least, more and more luxury condos are being built in San Francisco: Growing supply not only gives buyers more options and more negotiating room, but it decreases the urgency to write strong offers quickly and the motivation to compete with other buyers.

However, the luxury home market hasn’t “crashed”: there are still high-end homes selling very quickly for very high prices amid competitive bidding.But it has markedly cooled and the number of luxury home listings in San Francisco hit a new high in October, so correct pricing has becomes increasingly vital. It remains to see if this change is just a transitory market blip – such blips are not uncommon in financial or real estate markets – or the beginning of a longer term reality.

Median Sales Price by Month

Median-Prices_Short-Term

Even with the general cooling in the market since spring and the significant slowdown in higher end home sales, the overall median sales price for houses and condos bounced back up to $1,200,000 in October. Median prices are impacted by seasonal trends: typically peaking in the spring, dropping in the summer, up again in the autumn and then plunging during the winter holidays. This has more to do with inventory than with changes in fair market value. Short-term fluctuations are not particularly meaningful: It is the longer-term trend that gives a sense of what’s going on in the market.

For houses alone, the median sales price in October was $1,300,000 and for condos, it was $1,100,000.

Supply & Demand Statistics
by Price Segment, October 2015

Oct-15_MSI_SFD-Condo_by_Price-Segment

Months Supply of Inventory (MSI) is a classic measurement of supply and demand, calculating the time it would take to sell the existing inventory of homes for sale at the current rate of market activity. The lower the MSI, the greater the demand as compared to the supply, i.e. the hotter the market. The house market in San Francisco has been stronger than the condo market since the recovery began – though the condo market has been crazy hot as well – because the supply of houses is more limited and is dwindling as a percentage of sales because virtually no new houses are being added to inventory. However, new condos are being built in quantity. This chart above illustrates the dramatic difference in the markets for homes up to the median price ($1.3 million for houses, $1.1 million for condos) and in the next price segment higher, versus the luxury home segment, defined here as houses selling for $2,000,000+ and condos for $1,500,000+. (By this definition, luxury sales currently make up about 20% of San Francisco’s home sales.)

Because SF has been so hot for so long, we’ve adjusted the thresholds for what MSI readings define “seller’s market” and “buyer’s market” to better reflect the psychology of the current market.

Luxury Home Listings for Sale

LuxHome_Units-for-Sale_by-Month

As mentioned earlier, the number of high-end house and condo listings hit all-time highs in October, while sales numbers are well below levels hit in the previous 2 years. Even more so than the general market, the luxury segment is dramatically affected by seasonality and typically goes into deep hibernation from Thanksgiving to mid-January. Having so many active listings on the market just prior to the winter holiday doldrums is one of the reasons why we designate the luxury-home segment as currently having moved into “buyer’s market” territory.

The Luxury Home Market: Months Supply of Inventory
Year over Year over Year Comparisons

LuxHome_MSI_YoY-Comparisons

This chart above illustrates the change in the luxury home market supply and demand balance over the past three Octobers. As a further point of context to what has happened in the past year, during the feverish market of this past spring, the MSI for luxury houses hit a low of 1.6 months of inventory and the MSI for luxury condos hit a low of 1.7 months. Since 2012, spring has consistently been the hottest, most competitive, selling season of the year and most home price appreciation has occurred during that time.

4 Neighborhood Snapshots

Bayview-House_Median-Prices_by-Year

Glen-Park_SFD_Avg-SP_DolSqFt_by_YEAR

Marina-SFD-Condo_Median-Sales-Prices

St-Francis-Wd_SFD_DolSqFt_by_YEAR

Much more information regarding SF neighborhood prices and trends can be found here: San Francisco Neighborhood Values

Average Asking Rents in San Francisco

Rents_Avg-SF_by-year

The real estate market has been challenging for homebuyers these past few years, but for anyone looking to rent a home in the city, it has been distinctly more difficult financially. Homebuyers have the benefit of historically low interest rates, multiple tax advantages and, hopefully, substantial appreciation gains over time; renters enjoy none of those advantages (though admittedly there can be long-term benefits to rent control for renters that qualify). Even with the big jump in home prices over the past 4 years, factoring in the 35% – 40% decline in interest rates and adjusting for inflation, the ongoing monthly cost of homeownership (for someone putting 20% down) is roughly the same as it was in 2007. But average monthly asking rents in the city have surged over 50% during the same period.

This has made rental property ownership an increasingly lucrative proposition, which we discuss in more detail in our last Commercial Brokerage report: Bay Area Apartment Building Market

Median Household Incomes
In Selected San Francisco Zip Codes

SF-Household-Income_by-Zip

By Bay Area County

Bay-Area_Homeowner_Median-HH-Income

Additional demographic analyses from previous reports can be found here: San Francisco & Bay Area Demographics andBay Area Affordability read more →

S&P Case-Shiller Home Price Index for San Francisco Metro Area

The S&P Case-Shiller Index for the San Francisco Metro Area covers the house markets of 5 Bay Area counties, divided into 3 price tiers, each constituting one third of unit sales. Most of San Francisco’s, Marin’s and Central Contra Costa’s house sales are in the “high price tier”, so that is where we focus most of our attention.” The Index is published 2 months after the month in question and reflects a 3-month rolling average, so it will always reflect the market of some months ago. The Index for July 2015 was released on the last Tuesday of September. In 2014, after a torrid spring selling season, the market plateaued during the summer and autumn, and a similar trend seems to be developing in 2015 as well, after its own white hot spring.

The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa. Needless to say, there are many different real estate markets found in such a broad region, and it’s fair to say that the city of San Francisco’s market has generally out-performed the general metro-area market.

The first two charts illustrate the price recovery of the Bay Area high-price-tier home market over the past year and since 2012 began, when the market recovery really started in earnest. In 2012, 2013, 2014 and now 2015, home prices have dramatically surged in the spring (often then plateauing or even ticking down a little in the following seasons). The surges in prices that have occurred in the spring selling seasons reflect frenzied markets of huge buyer demand, historically low interest rates and extremely low inventory. In San Francisco itself, it was further exacerbated by a rapidly expanding population and the high-tech-fueled explosion of new, highly-paid employment and new wealth creation.

For more regarding how seasonality affects real estate: Seasonality & the Real Estate Market

Case-Shiller Index numbers all reflect home prices as compared to the home price of January 2000, which has been designated with a value of 100. Thus, a reading of 218 signifies home prices 118% above the price of January 2000.

Short-Term Trends: 12 Months & Since Market Recovery Began in 2012

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Longer-Term Trends & Cycles

The third and fourths charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco and Marin counties), showing the cycle of recession, recovery, bubble, decline/recession since 1996, and since 1988. Note that, past cycle changes will always look smaller than more recent cycles because the prices are so much higher now; if the chart reflected only percentage changes between points, the difference in the scale of cycles would not look so dramatic.

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Different Bubbles, Crashes & Recoveries

This next 3 charts compare the 3 different price tiers since 1988. The low-price-tier’s bubble was much more inflated, fantastically inflated, by the subprime lending fiasco – an absurd 170% appreciation over 6 years – which led to a much greater crash (foreclosure/distressed property crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries, but because the bubbles of the low and middle tiers were greater, their recoveries leave them below – a little bit for the mid-price-tier and well below for the low-price-tier – their artificially inflated peak values of 2006. It may be a long time before the low-price-tier of houses regains its previous peak values. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, has now significantly exceeded its previous peak values of 2007. Most neighborhoods in the city of San Francisco itself have now surpassed previous peak values by very substantial margins.

It’s interesting to note that despite the different scales of their bubbles, crashes and recoveries, all three price tiers now basically show the same overall appreciation rate when compared to year 2000. As of July 2015, Case-Shiller puts all 3 price tiers at 118% – 119% over year 2000 prices. This suggests an equilibrium is being achieved across the general real estate market.

Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers though, generally speaking, you will find all 3 tiers represented in different degrees in each county. Bay Area counties such as Alameda, Contra Costa, Napa, Sonoma and Solano have large percentages of their markets dominated by low-price tier homes (though, again, all tiers are represented to greater or lesser degrees). San Francisco, Marin, Central Contra Costa, San Mateo and Santa Clara counties are generally mid and high-price tier markets, and sometimes very high priced indeed. Generally speaking, the higher the price, the smaller the bubble and crash, and the greater the recovery as compared to previous peak values.

Remember that if a price drops by 50%, then it must go up by 100% to make up the loss: loss percentages and gain percentages are not created equal.

The numbers in the charts refer to January Case-Shiller Index readings, except for the last as labeled..

Low-Price Tier Homes: Under $579,500 as of 7/15

Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery but still well below 2006-07 peak values.

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Mid-Price Tier Homes: $579,500 to $949,000 as of 7/15

Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline) than low-price tier. As of July 2015, a strong recovery has put it back up to its previous 2006 peak.

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High-Price Tier Homes: Over $949,000 as of 7/15

84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Now climbing well above previous 2007 peak values.

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In San Francisco, where many neighborhoods vastly exceed the initial price threshold for the high-price tier, declines from peak values in 2007 in those more expensive neighborhoods typically ran 15% – 20%, and appreciation over previous peak value has also exceeded the high-price tier norm.

San Francisco, Marin and Central Contra Costa

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 (and the country): many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices. This chart shows both house and condo values, while the C-S charts used above are for house sales only. Median prices are affected by other factors besides changes in values, including seasonality, new construction projects hitting the market, inventory available to purchase, and significant changes in the distressed and luxury home segments.

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Marin County

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Central Contra Costa County

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And this chart for the Noe and Eureka Valleys neighborhoods of San Francisco shows the explosive recovery seen in many of the city’s neighborhoods, pushing home values far above those of 2007. Noe and Eureka Valleys have become particularly prized by the high-tech buyer segment and the effect on prices has been astonishing.

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All data from sources deemed reliable, but may contain errors and is subject to revision. Statistics are generalities and how they apply to any specific property is unknown. Short-term fluctuations are less meaningful than longer term trends. All numbers should be considered approximate.

© 2015 Paragon Real Estate Group

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