The California Association of Realtors just released its Housing Affordability Index (HAI) for the 2nd quarter of 2015. All Bay Area counties saw declines in their affordability index reading – which measures the percentage of households that can afford to buy the median priced single family dwelling (house) – and San Francisco is now only 2 percentage points above its all-time low of 8%, last reached in Q3 2007.
In this analysis, affordability is affected by 3 major factors: median house price, mortgage interest rates and household income. (Housing Affordability Index Methodology).
Affordability Percentage by Bay Area County, Q2 2015
Minimum Qualifying Income to Buy Median Priced House
Assumes 20% downpayment and including principal, interest, property tax and insurance costs.
Bay Area Median House Prices, Q2 2015
Affordability Trends: San Francisco, San Mateo & Marin
These 3 counties illustrate the general ups and down in Bay Area housing affordability since 1991.
San Francisco County: Median Price vs. Affordability
Illustrating the surge in SF home prices and decline in affordability since the current market recovery began in 2012.
- By definition, half the homes sold in any given county were at prices below the median sales price, i.e. there were numerous homes that were more affordable than the median price, with lower associated housing costs and income requirements.
- The CAR Housing Affordability Index uses median house prices for its calculations. In all Bay Area counties, median condoprices run below and often far below median house prices, which also adds to overall affordability. In San Francisco itself, more than half of all home sales are condos, stock co-op apartments and Tenancy-in-Common units (TICs), and if units of less than 2-bedrooms are included, they are significantly less expensive than houses. (SF condos of 2-bedrooms or more actually come within 4% to 5% of overall median house prices.)
- Besides increases in employment and population, much of the demand for Bay Area housing is being driven by increases in household wealth, which is different from household income. Wealth includes gains from a surging stock market and such things as stock options and IPO proceeds at high-tech companies, which have generated huge amounts of new wealth over the past 3 years.
- Pertaining to San Francisco: Most of its households are made up of renters, most of whom are under rent control. Furthermore, a very large percentage – 39% – of SF households is made up of single persons. Both these issues skew the household income equation: According to census figures, SF has a lower median household income than Santa Clara, Marin, San Mateo and Contra Costa (but higher home prices).
Monthly Housing Costs: Purchase vs. Rental
Two issues to keep in mind when comparing monthly ownership costs with monthly rental costs, both of which are very high in the Bay Area: Firstly, the average house is much larger than the average apartment, so this is not an apples to apples comparison. Secondly, the housing costs for ownership should ideally be adjusted for loan principal repayment, which builds equity, as well as for the tax deductibility of mortgage interest and property tax payments (depending on one’s specific financial circumstances). Those are two reasons why buying often makes financial sense when compared to renting. Long-term home-price appreciation may be another.
San Francisco: Trends in Prices and Rents
The same economic and demographic forces have been putting pressure on both home prices and apartment rents.
SF Median Home Prices since 2012, by Quarter
SF Average Asking Rents since 1994, by Year
Mortgage Interest Rates since 1981
Interest rates play an enormous role in affordability, and it is certainly reasonable to be concerned that affordability percentages are now hitting such depths while interest rates are also close to historic lows. For example, in 2007, when affordability percentages hit previous low points, prevailing mortgage interest rates were approximately 50% higher than today’s. When interest rates start to rise – when and how much being the real questions – there will be potentially dramatic effects on affordability, which could presumably affect demand and prices.
Monthly Housing Cost Adjusted for Inflation and Interest Rates
This chart illustrates a very approximate calculation of monthly housing cost (principal, interest, property tax and insurance)adjusted for inflation – i.e. in constant 1993 dollars – over the past 22 years, using annual median house sales prices, average annual 30-year interest rates, and assuming a 20% downpayment. The compounding CPI-Urban inflation rate fluctuated over the period, but averaged about 2.4% annually. Average annual 30-year mortgage rates fluctuated from 8.4% to 3.7%, hitting a historic short-term low of 3.4% in 2013; it is currently running around 4%.
Adjusting for inflation and interest rate changes means that though the median sales price is now far above that of 2007, the monthly housing cost is still a little bit below then – which generally correlates with the HAI percentages. This isn’t a perfect apples-to-apples comparison because it doesn’t take into account that the amount of the 20% downpayment increased significantly over the time period.
Other reports you might find interesting:
Combined House & Condo Median Sales Prices
Besides the general economic recovery, there are other factors in different counties affecting home price increases over the past 4 years: 1) the huge decline in distressed property sales in those counties severely affected during the downturn (such as Solano, Contra Costa & Alameda), 2) the dramatic surge in luxury home sales (such as in SF, San Mateo & Marin), 3) increasing luxury condo construction (SF), and 4) the effect of the high-tech boom in employment and wealth, which radiates out from San Francisco and Silicon Valley.
The higher priced counties, led by San Francisco and San Mateo, saw the largest dollar increases in median prices since 2011 – $400,000 to $500,000 – but counties rebounding from the distressed property crisis often experienced the biggest percentage jumps. The city of Oakland, benefiting from both the decline in distressed sales and being the closest, most affordable option to high San Francisco housing prices saw by far the largest percentage increase: 133%.
We’re almost positive that we recommended that everyone buy at least one median-priced Pacific Heights mansion in 2011 at the bargain-basement price of $3,225,000. If you had followed this (imaginary) advice, your home would have appreciated by $2.77 million. However, on a pure return on investment basis, you would have done better to snap up a few median-priced houses in the Mission, which appreciated by an incredible 143%. It should be noted that both of these neighborhoods have comparatively few house sales as compared to, say, the Sunset or Bernal Heights. Low supply is often one factor in high appreciation rates.
For condos, Russian Hill led the way in dollar median price appreciation and Yerba Buena was tops in percentage price increase since the bottom of the market in 2011.
Over the past 4 years, houses have appreciated a bit more than condos in the city, 81% to 73%, and that is probably due to the fact that houses are becoming the scarcer commodity: While thousands of new condos are now being built each year, new house construction can usually be counted on 2 or 3 hands.
For prevailing SF median house and condo prices, our interactive map of neighborhood values can be found here:SF Neighborhood Home-Price Map
Increasing average dollar per square foot values have been breaking records in neighborhoods throughout San Francisco for the last 2 years. Some of the surge in condo values is explained by the many recently built luxury condo projects – which have been selling at premium dollar per square foot prices – that have been sprouting up around the city.
Sales of higher-end houses and condos have been soaring in the city and hit by far their highest number ever in the second quarter. Big jumps in expensive home sales are an important factor behind increases in the overall median sales price.
The short-term and long-term appreciation charts above are self-explanatory. The Home Cost Trends chart reflects a very approximate calculation of monthly home payment costs (principal, interest, property tax and insurance) adjusted for inflation – i.e. in 1993 dollars – using annual median house sales prices, average annual 30-year interest rates, and assuming a 20% downpayment. The average annual compounding CPI inflation rate fluctuated, but averaged approximately 2.4% over the period, and average annual mortgage rates fluctuated from 8.4% to 3.7% (see chart further below), which had a huge impact on financing costs.
Adjusting for inflation and interest rate changes means that though the median sales price is now far above that of 2007, the monthly housing cost is still a little bit below then. This isn’t a perfect apples-to-apples comparison because it doesn’t take into account that the amount of the 20% downpayment increased significantly over the time period. Still, since ongoing cost is typically an important factor for homebuyers (at least those getting financing), this affords another angle on our market.
Over the last 4 years, the big decline in interest rates has largely subsidized the increase in home prices.
In the 2nd quarter, the vast majority of SF home sales sold without prior price reductions; these sold very quickly, at an astounding average of 14.5% over the original list price – clear indications of a white-hot market. For the past 4 years, spring has been by far the most frenzied selling season of the year, and the market usually cools in summer.
Median sales prices are often affected by other factors besides changes in fair market value. Seasonality; big changes in the distressed, luxury and new-construction market segments or simply the inventory available to purchase;interest rate fluctuations; changes in buyer profile; and other economic variables can all impact median prices. Short term fluctuations are less meaningful than longer term trends.
These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and how they apply to any specific property is unknown without a tailored comparative market analysis. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier. All numbers should be considered approximate.
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 the San Francisco’s and Marin’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 April 2015 was released on the last Tuesday of June.
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. From what we are seeing on the ground in the feverishly competitive hurly-burly of deal-making, we expect further increases to show up in the May and June Index reports.
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 214 signifies home prices 114% above the price of January 2000.
Short-Term Trends: 12 Months & Since Market Recovery Began in 2012
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.
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 have similar overall appreciation rates when compared to year 2000. As of April 2015, this range has narrowed to 109% to 114% 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, 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 $549,000 as of 4/15
Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery but still well below 2006-07 peak values.
Mid-Price Tier Homes: $549,000 to $903,000 as of 4/15
Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline) than low-price tier. Strong recovery but still a little below 2006 peak.
High-Price Tier Homes: Over $903,000 as of 4/15
84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Now climbing well above previous 2007 peak values.
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 County
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.
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. San Francisco, San Mateo and Santa Clara counties are most effected by the high-tech wealth effect on home prices. Noe and Eureka Valleys are particularly prized by this buyer segment and the effect on prices has been astonishing.
Escalating Home Prices; Fierce Overbidding; Luxury Home Sales;
Interest Rates; Employment Trends; Biggest Home Sales of 2015 YTD
June 2015 San Francisco Real Estate Report
by Paragon Real Estate Group
4 Angles on San Francisco Home Price Appreciation
Short-Term Trend Line: Since the Recovery Began in 2012
Longer-Term Trends: 1993 – 2015
Neighborhood Appreciation Snapshots
May 2011 – May 2015
Central Sunset, Central Richmond & Noe Valley:
Median House Sales Prices
SoMa, Eureka Valley & Marina:
2-Bedroom Condo Median Sales Prices
Luxury Home Sales by District
High-end home sales and prices in the city have been increasing rapidly, with interesting shifts occurring between older high-prestige neighborhoods like Pacific Heights and Russian Hill, and areas such as Noe Valley and South Beach, where surging sales of very expensive homes are a more recent phenomenon.Part of this shift is being fueled by the explosion of younger, high-tech wealth; another part is the recent construction boom of high-rise, ultra-luxury condo buildings south of Market Street.
There is an enormous variety in high-end real estate in San Francisco, from mansions to penthouses, Victorians to new, ultra-high-tech construction, as can be glimpsed in the list of sales at the end of this report. One of the more common amenities is spectacular views.
Home Sales by Price Segment, 2015 YTD
Four years ago, one found the most homes for sale in the $600,000 to $750,000 price segment. Now $1 million to $1.5 million is the “sweet spot” for San Francisco home prices.
Overbidding List Prices
When the average SF home sale is selling for 10% over the original asking price, the market is characterized by fiercely competitive buyer bidding wars. Another indicator: Almost 93% of home sales in May sold without going through any price reductions, an astonishingly high percentage.
These charts above and below, along with the one at the top of this newsletter delineating quarterly median price movements, also illustrate the seasonal nature of real estate sales. For 4 years running, the hottest, most competitive markets have been during the spring selling season. The market often cools down during the summer.
Two of the biggest factors affecting the San Francisco real estate market are extremely low interest rates, which have a large impact on the ongoing cost of homeownership, and surging, well-paid employment. According to Ted Egan, San Francisco’s Chief Economist, high-tech jobs alone jumped by 18% in the 12 months through March 2015, and as of April, the city’s unemployment rate, at 3.4%, was the lowest since the height of the dotcom boom.
Interest rates are almost 40% below those in 2006 – 2007. With home prices having increased so much recently, future interest rate changes will be something to watch carefully for their impact on affordability. Rates have been inching up recently and just hit 4% for the first time in 2015, but they are still very low by any historical measure.
Highest Home Sales by Neighborhood, 2015 YTD
This is a sampling of highest sales prices achieved in selected San Francisco neighborhoods in 2015 YTD, as reported to MLS. Note that this is not a comprehensive list of the city’s highest priced home sales.
$31,000,000. Pacific Heights: 7-bedroom, 16,400 sq.ft. mansion on Broadway, $1890/sq.ft.
$11,000,000. Sea Cliff: 5-bedroom, 3600 sq.ft., ocean-front house on Sea Cliff Ave., $3068/sq.ft.
$9,250,000. Pacific Heights: 2-bedroom, 3500 sq.ft., 1927 co-op on Alta Plaza Park, $2643/sq.ft.
$9,100,000. Russian Hill: 2-bedroom, 3300 sq.ft. co-op at Royal Towers, $2742/sq.ft.
$7,000,000. Noe Valley: 5-bedroom, 1907, 4450 sq.ft. house on Elizabeth Street, $1571/sq.ft.
$6,500,000. Alamo Square: 6-bedroom, 1902, 7800 sq.ft. mansion on Fulton, $833/sq.ft.
$6,285,000. St. Francis Wood: 5-bedroom, 6700 sq.ft. mansion on half-acre lot on San Anselmo Ave., $938/sq.ft.
$5,600,000. Dolores Heights: 4-bedroom, new construction house on Noe Street
$5,500,000. Nob Hill: 3-bedroom, 2721 sq.ft. TIC at Park Lane, $2021/sq.ft.
$5,475,000. SoMa: 3-bedroom condo at Four Seasons
$4,995,000. South Beach: 3-bedroom penthouse condo on South Park
$4,200,000. Glen Park: 4-bedroom, new construction, 3400 sq.ft. house on Laidley, $1235/sq.ft.
$4,000,000. Yerba Buena: 2-bedroom, 1952 sq.ft. condo at Millennium, $2049/sq.ft.
$3,900,000. Lake Street: 3-bedroom, 2952 sq.ft., 1914 Edwardian, $1321/sq.ft.
$3,850,000. Golden Gate Heights: 5-bedroom, 4062 sq.ft. 1974 house on Pacheco, $948/sq.ft.
$3,150,000. Bernal Heights: 4-bedroom, 2293 sq.ft., 2011 house on Folsom, $1374/sq.ft.
$3,100,000. Inner Mission: 3-bedroom, 2800 sq.ft. house on Shotwell, $1107/sq.ft.
$3,000,000. Inner Richmond: 3-bedroom, 4225 sq.ft. 1912 Edwardian on 10th Ave., $710/sq.ft.
$2,885,000. Inner Sunset: 3-bedrrom, 2640 sq.ft. 1904 Edwardian on 6th Ave., $1081/sq.ft.
$2,715,000. Hayes Valley: 4-bedroom, 3808 sq.ft. TIC on Waller, $713/sq.ft.
$2,510,000. Forest Hill: 5-bedroom, 3300 sq.ft., 1926 house on Taraval, $761/sq.ft.
$2,400,000. Potrero Hill: 3-bedroom, 2434 sq.ft., 1908 Edwardian on Kansas, $986/sq.ft.
$1,900,000. Sunnyside: 4-bedroom, 2715 sq.ft., 2003 house on Mangels, $700/sq.ft.
$1,280,000. Portola: 5-bedroom, 3128 sq.ft. new construction house on Madison, $409/sq.ft.
$900,500. Bayview: 4-bedroom, 1626 sq.ft., 1996 house on Armstrong, $554/sq.ft. read more →
This chart updates, with the last prices the medians for 2015 YTD (i.e. 1/1 – 5/21/15). read more →
Median Sales Prices; Luxury Home Sales; Housing Affordability Index;
Home Values by Neighborhood; Investment Real Estate; New Development
Median House & Condo Sales Prices
As the 2015 market has accelerated, median home sales prices have been hitting new highs in neighborhoods across San Francisco. Link to San Francisco Neighborhood Map
Home Price Appreciation
The chart above graphs monthly house and condo median price appreciation in the city since the market recovery began in early 2012. The 2 charts below are snapshots of changes in median sales prices in a sampling of 6 different SF neighborhoods from early 2013 to early 2015, one for houses and one for 2-bedroom condos. (The 2015 prices in these charts below may vary from those earlier in this report, because slightly different parameters were used.)
Median Price Changes, 2013 – 2015
Bayview, Bernal Heights & Glen Park Houses
Hayes Valley, Inner Mission, South Beach 2-Bedroom Condos
Luxury Home Sales
High-end home sales continue to hit new highs in San Francisco: Last spring was the hottest on record; spring 2015 is blowing through last year’s numbers. The chart above is from our updated luxury report, which can be found here:
SF Luxury Home Market Report
Housing Affordability Index
This CAR Housing Affordability Index (HAI) is calculated using median price, household income, interest rates and other financial criteria to determine the percentage of local households which can afford to buy. At 14% to 15%, San Francisco, Marin and San Mateo have very low affordability readings in comparison to other parts of the country – the Index reading is now 31% for the state and 59% for the country.
Affordability calculations are a complex and nuanced issue, especially in San Francisco*. However, one can’t argue with the general trend lines. When the market heats up and prices rise, affordability goes down; when the market goes into a recession, affordability rises. If affordability declines beyond a certain point, it may become an indicator of an overvalued real estate market. SF’s Index reading is still above the historic lows it hit in 2001 and 2007. Changes in interest rates can quickly and significantly affect affordability.
New Listings & Buyer Demand
The above chart illustrates the seasonal ebb and flow of the market as new listings come on the market and buyers react by putting properties under contract. Spring is typically the biggest selling season of the year, followed by a large spike in autumn. Market activity usually slows in summer and plunges during the winter holiday season.
Multi-Unit & Investment Real Estate
The two charts below are from our recently issued reports on the multi-unit building market, the first on properties of 2 to 4 units, and the second on larger apartment buildings of 5+ units. The second chart illustrates the parallels between rents and home prices in counties around the Bay Area. Regarding affordability: If someone’s choice is between paying a very high rent or buying an expensive home at today’s low interest rates and with all the tax advantages of homeownership, buying is typically the much better option financially over the longer term. But the devil is always in the details.
The full reports can be found here:
Housing Inventory & New Home Construction
The first chart below and the map following it depict the current boom in new-home construction and the districts where new development is clustered. The second chart illustrates the growth of the condominium segment of the city’s housing inventory via both construction and conversion.(A lot more is coming.) The new-home development situation in San Francisco is fascinating – and a fierce political issue.
Our full report on the topic is here: Paragon Housing & Construction Report
New home development often goes through gigantic boom and bust cycles. What complicates the issue for SF developers is that from start to finish, from creating plans for city review to completing construction, the process can easily take 4 to 6 years. Right now, both residential and commercial developers are making enormous bets on a long, sustained, up cycle in the SF economy and real estate market.
New residential construction is heavily concentrated around the Market Street corridor, the Van Ness corridor just north of Market, and in the large quadrant of the city that lies to the southeast of Market. This is due to the availability of large, previously commercial/industrial-use lots that can be changed to residential use, and the zoning that allows for large – sometimes very large – projects to be constructed in these areas.
Though only about 40 years old, the condo sales market in the city is now larger than the house market. And 99% of all new construction being built for sale consists of new and usually high-end condos.
* A few “peculiarities” that may skew the housing affordability calculation in San Francisco are: 1) the city has an abnormally high percentage of single-resident households, 38%, which affects median household income figures, 2) unlike most counties, the majority of SF residents are tenants not owners, and the greater part of those are under rent control, and 3) the SF market is currently being fueled in no small part by large numbers of people moving into the city for very well-paid jobs.
Short-term median prices may fluctuate due to a number of different factors, including seasonality, inventory available to purchase, interest rates and significant changes in the luxury and new-home segments of the market.Longer-term trends are always more meaningful than short-term ups and downs.
These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and how they apply to any specific property is unknown without a tailored comparative market analysis. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier, i.e. they are a month or so behind what’s actually occurring in the market as buyers and sellers make deals. All numbers should be considered approximate.Please contact us with any questions or concerns.
© 2015 Paragon Real Estate Group
Many of the charts included in this report are based on or excerpted from the San Francisco Planning Department’s 82-page 2014 Housing Inventory report, released in April 2015, which can be accessed using the link at the bottom of this article. Much of the text below detailing housing-inventory statistics is excerpted from this report as well.
The process of application and review, public hearings (and sometimes ballot proposals), revisions, entitlement, permitting, construction, inspection and completion is complex and lengthy. Housing units are being planned and built, and existing units are being altered and removed. And there are many housing types: rental or sale units, market rate or affordable, social-project housing or luxury condominiums.
The new-housing landscape in San Francisco is in constant flux: new projects, developer plan changes, city plan changes, and shifts in economic and political realities. The basic reality is that the city, after its recent 2008-2012 new-construction slump, is now experiencing a huge building boom. So far, however, it has not been able to keep up with accelerating population growth, soaring employment and concomitant surging buyer/renter demand.
“The production of new housing in 2014 totaled 3,654 units, a 50% increase from 2013. This includes 3,454 units in new construction and 200 new units added through conversion of non-residential uses, alterations to existing units or buildings, or expansion of existing structures. Some 140 units were lost through demolition (95), unit mergers (20) and removal of illegal units (24).
“Some of the larger projects completed in 2014 include: 1411 Market Street/NEMA Phase II (437 market-rate units and 52 affordable inclusionary units), 185 Channel Street (315 market rate units), Rincon Hill Phase II (312 market rate units).The 1190 4th Street (100% affordable 150 units) and St. Anthony Foundation’s 121 Golden Gate Avenue (100% affordable 90 senior housing units) are two major affordable housing projects completed in 2014.”
“The Planning Department approved and fully entitled 57 projects in 2014. These projects propose a total of 3,756 units. In 2014, 3,834 units were authorized for construction. This represents a 21% increase from 2013. New housing authorized for construction over the past five years continues to be overwhelmingly (90%) in buildings with 20 or more units. In 2014 the average project size was 16 units.”
“Some of the major projects authorized for construction during the reporting year include: 2801 Brannan Street (434 units); 3350 8th Street (408 units); 250 4th Street (208 units); and 588 Mission Bay Boulevard (200 units).”
“In 2014, 269 projects with about 8,030 units were filed with the Planning Department. This number is higher than the count in 2013 by 66% and is a little over double that of the five year average of almost 3,690 units.
Residential Development by City District
New construction has been concentrated in a few specific districts of the city, mostly where there are commercial lots able to be converted to residential use and where higher density housing projects are most viable. The ability to take under-utilized commercial property sites and turn them into multi-unit or even high-rise residential projects is particularly prized. Generally speaking this describes the quadrant of San Francisco around and to the southeast of the Market Street corridor.
New Development Pipeline
We also have an overview of the quarterly San Francisco Planning Department’s Pipeline Report, which complements the annual Housing Inventory reports with a longer term perspective: The San Francisco Residential & Commercial Development Pipeline Report. Below is one chart from this report.
There are over 50,000 housing units of all kinds currently in the pipeline – and the pipeline is growing and changing quickly now – but some of the bigger projects (such as Treasure Island and Hunter’s Point/Shipyard) may take decades to complete.
Construction vs. Conversion
“Thirty-three single-family units were added in 2014: Single-family building construction made up a very small proportion of new construction in 2014 (1%).” Very few new houses are built in San Francisco, as developers prefer to build higher density housing projects on our limited supply of land. The houses that are built are typically big and expensive.
“New condominium construction in 2014 dropped to 1,977 units from 2,586 units in 2013. Condominium conversions were up by 98% in 2014 (730 from 369 conversions in 2013). This number is 20% higher than the 10-year average of 606 units.” The rules governing condo conversion in San Francisco are byzantine, politically-wrought and, seemingly, ever-changing, and the changes affect the ability to convert existing multi-unit properties and TICs into condominiums. .
Affordable Housing Construction
Very generally speaking, the city requires that new home developers either dedicate 15% of their units to affordable housing, which could be built on-site or on another city site, or contribute to the city’s affordable housing fund “in lieu” of building the units themselves.(The rules are more complicated than that, but that’s the general idea.) There are few subjects more politically charged in San Francisco than affordable housing: how much should be built where and who should be responsible for the costs.
“In 2014, 757 new affordable housing units were built. These new affordable units made up 21% of new units added to the City’s housing stock. This count includes 267 inclusionary units and 59 units added to existing structures. About 83% of the new affordable units are rentals affordable to very-low and low-income households.” These units are allocated, rented and sold under rules and formulas pertaining to social and economic circumstances and housing cost. Large projects are also built on an ongoing basis by private-public social organizations for dedicated purposes such as senior housing.
“In 2014, a total of about $30 million was collected from developers as partial payments of in-lieu fees for projects.”
Major affordable housing projects completed in 2014 include: 1190 4th Street (150 units); 121 Golden Gate Avenue (90 units); 378 5th Street (44 units); 833-871 Jamestown Avenue (96 units); 1600 Market Street (23 units); and 63 West Point Road (15 units).
Housing Units Demolished, Merged and Abated
“Dwelling units are gained by additions to existing housing structures, conversions to residential use, and legalization of illegal units. Dwelling units are lost by merging separate units into larger units, by conversion to commercial use, or by the removal of illegal units. The net gain of 155 units from alterations in 2014 is comprised of 200 units added and 45 units eliminated.”
The Context behind San Francisco New-Housing Development
Population, Employment, New Supply vs. Demand
What ultimately underpins new housing construction is demand. San Francisco is seeing surging population and employment that has been far outpacing new supply. Below are 3 charts we made up plus one from the CA Legislative Analyst’s Office.
Insufficient Housing = Increasing Prices & Rents
Below are two of our charts illustrating the white hot rental and sale markets in San Francisco, which are motivating investors and developers to build new homes, and motivating the city and non-profits to try and accelerate the construction of affordable housing units as well.
New Housing Construction by Bay Area County
As can be seen below, Santa Clara has taken the lead in new home construction in the Bay Area. “In 2014, Bay Area counties authorized 21,090 units for construction, 8% more than the 2013 authorizations of 19,551 units. In San Francisco, 98% of new housing is in multi-family buildings.”
SF Housing Stock by Building Size
Condo Values by Era of Construction
The first golden age of SF apartment buildings, many of which were later turned into condos, was in the period of 1920 – 1940: The units in these buildings are large, light, gracious and filled with elegant detail. Pacific Heights and Marina are filled with these buildings. Though there are beautiful condos built in other eras (Edwardian flats, Art Deco apartments), the second golden age really arrived with the latest burst of new-condo construction, built for an increasingly affluent population: These units are ultra-modern, high-tech and feature highest quality finishes and amenities. They are exemplified by the new, luxury high-rises of the greater South Beach-Yerba Buena area, though variations on this theme, in non-high-rise form, have been springing up all over the city.
The units in these newer buildings command a premium both when rented or, as seen in the chart above, when sold – now surpassing an average dollar per square foot value of $1000. This is the major motivator for developers today.
Housing Unit Construction by Bedroom Count
We haven’t found an easy place for construction data by unit size, so this first chart above is extrapolated from SF MLS sales of condos built 2001 -2015. It may not apply perfectly to units built as apartment rentals or affordable housing.
Typically, the smaller the unit, the higher the dollar per square foot value on sale or rental, however in San Francisco, 3+ bedroom condos are often high-floor units with spectacular views that sell for extraordinary sums – but these would be outliers to the general rule. The city plan appears to have a bias for 2-bedroom units, which it designates as “family units” – this may be an anachronism considering that 38% of city residents live alone and that SF has the lowest percentage of children of any major U.S. city.Lately there has been a push by developers (and some housing advocates) toward smaller or even “micro” units, but other segments in the decision-making chain in the city, such as supervisors and neighborhood community groups, often push back against allowing this trend to gain traction in the city.
The politics of new home development in San Francisco is not for the weak of heart. There are very, very strong opinions and pressures regarding how it should best proceed.
San Francisco Planning Department
Pipeline & Housing Inventory Reports
Below are links to the SF Planning Department Pipeline and Housing Inventory report webpages. They contain huge amount of data, which we have attempted to represent accurately.As noted by their authors, who did an incredible job, the original reports themselves are “compiled and consolidated from different data sources and subject to errors due to varying accuracy and currency of original sources.”
And this image-link goes to a flowchart of the Planning Department’s
review and approvals process:
This report was created in good faith and is based on data from sources deemed reliable,
but may contain inadvertent errors and misrepresentations, and is subject to revision.
© April 2015 Paragon Real Estate Group
In this report, we will define luxury homes in San Francisco as houses, condos, co-ops and TICs selling for $2,000,000 or more. Homes selling in this price range currently make up a little more than 10% of the SF residential market; those selling for $5,000,000 and above constitute about 1% of the city’s home sales.
In the past 12 months, 671 home sales of $2m+ above (414 houses, 220 condos, 23 co-ops, 14 TICs), and 67 sales of $5m+ (56 houses, 7 condos, 3 co-ops, 1 TIC) were reported to San Francisco MLS.
Not shown on the chart, but if we compared our recent market with the previous peak of the market prior to the 2008 crash, home sales of $2m+ have more than doubled: Part of this speaks to the surge in affluence in the Bay Area, and part of it is due to recent home price appreciation.
for San Francisco Luxury Homes
For buyers of larger houses, the greater St. Francis Wood-Forest Hill area offers comparably large and elegant homes, often on larger lots, at significantly lower dollar-per-square-foot prices. (See the following section below the next chart.) And many of the large, gracious, 3 to 5 bedroom Edwardians found in Inner/Central Richmond and Inner Sunset now sell for over $2m, but usually at lower prices than in the Lake Street and Cole Valley neighborhoods nearby.
for San Francisco Luxury Homes
Some homes are selling far beyond the average values seen here: A 15,000 square foot penthouse in South Beach is now on the market at $3000 per square foot, and a Pacific Heights penthouse of 5400 square feet reportedly just sold off-MLS for over $5000 per square foot, an all-time high in the city.
Part of the reason is proximity to where high-tech workers work in San Francisco and on the peninsula; another part is that many of the newly wealthy are relatively young and prefer a different neighborhood ambiance; and last but not least, the vast majority of new luxury condo construction is occurring in the quadrant of the city near to and southeast from Market Street. There is very little new housing construction occurring on the north side of the city.
Not included in the chart above, but over the 7-year period, home sales of $2m+ also increased in the Richmond/Lone Mountain neighborhoods from 1.5% to 3% of total luxury home sales, and from 0% to 2% of sales in Inner Sunset.
Last but not least, it should also be remembered that the more expensive the home, the smaller the pool of qualified, prospective buyers: Sometimes, it simply takes longer to find the right one for a particular property, especially if it’s a little outside of the norm in some way.
Of San Francisco’s home sales of $2m+ in Q1 2015, 43% were condos, co-ops and TICs. SF is the only Bay Area county where luxury condos and co-ops play a significant (and increasing) role in the market. Less than a handful sold in all the other counties combined.
For your convenience, below is a map of San Francisco neighborhoods and a breakdown of neighborhoods in each Realtor district.
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 without a tailored comparative market analysis. Outlier sales that would distort the statistics were deleted from the analysis when identified. All numbers should be considered approximate.
© 2015 Paragon Real Estate Group
San Francisco Home Value Appreciation
The chart above illustrates the continued march upward of median home sales prices in San Francisco. However, if we separate out house from condo sales, an interesting trend appears: The median house sales price basically stayed flat from Q4 2014 to Q1 2015, but the median condo sales price jumped from $995,000 to $1,080,000. Drilling down further, the median sales price for SF 3-bedroom houses in Q1 was $1,200,000; for 2-bedroom condos, it was $1,199,000, i.e. effectively the same. Much of this is due to the fact that the greatest number of houses in the city exists in the less expensive western and southern neighborhoods, while 1) condos are mostly found in more expensive areas, and 2) new home construction in San Francisco for the last 10 years has been dominated by very high-end condo projects. That trend is only accelerating in the current building boom.
This is illustrated below in a comparison of house and condo average dollar-per-square-foot values in the first quarters of 2008 – 2015. For the first time, overall SF condo sales just hit an astounding average of $1000 per square foot. Much of this increase is being fueled by recently built condos selling for far higher figures.
More Affordable Neighborhoods Take Off
When the SF market recovery began in 2012, the more affluent neighborhoods led the way in rapid home-price appreciation, but in 2014, the more affordable neighborhoods took the lead. Of course, there are few places outside San Francisco where houses of $1.2 million would constitute the “affordable” segment of the market, but as median house prices in the greater Noe, Eureka & Cole Valleys area accelerated over $2 million (and over $4 million in the Pacific Heights-Marina district), buyers started to fan out, desperately looking for less expensive options. That sparked increased competition and the chart below illustrates the resulting year-over-year appreciation rates in some of those neighborhoods.
This is not to suggest that the higher-end house markets in the city are languishing. That is not the case – the markets are crazy there too – but generally speaking, recent appreciation rates have not been as robust as in less costly neighborhoods. Information on home prices around the city can be found here: SF Neighborhood Values.
Statistics are generalities that can be affected by various factors, and different baskets of unique homes sell in different quarters. And different statistics can disagree: For example, as seen above, Bernal Heights, which has been white hot, saw year over year median price appreciation of 10%, but its average dollar-per-square-foot value jumped 19%. Consider these statistics to be general indicators instead of precise measurements of changes in home values.
Sales Prices, Price Reductions and Days on Market
Further indications of the heat of our market: The vast majority of sales in March sold very quickly, without going through a price reduction, and averaging a whopping 10% over asking price. That relatively small percentage of listings that went through price reductions prior to sale took 3 times longer to sell at a significant discount to original list price. And, of course, not every home sells: If a property is deemed significantly overpriced, buyers typically ignore it and, unless price reduced, the listing will ultimately be withdrawn from the market. A hot market doesn’t imply buyers will pay any price that pops into a seller’s head (though sometimes it may seem so).
Factors behind the Low Supply of Homes for Sale
Lately, there have been many articles about the reasons why sellers aren’t selling, which is supposedly the main cause of the market’s drastically low inventory situation. What is rarely mentioned is that by far the biggest factor behind declining inventory is not that sellers aren’t selling, but simply the greatly increased demand over the past 3 years. The number of sales in 2014 was actually about average for the last 15 years. Mostly, it was the competition among greater numbers of buyers that shrunk the supply of homes for sale at any given time.
Below is Slide 3 of three charts from our full report (The Real Story behind Low Inventory). It shows how inventory declines as buyer demand increases, even if the number of new listings coming on market doesn’t fall. Please see the full analysis for our complete reasoning, as well as a list of other subsidiary factors.
The simplified, sample illustration below uses actual data pertaining to buyer demand in the city over recent years, but assumes that the number of new listings stays steady at 600 per month.
Comparing Bay Area County Markets
These 3 analyses are excerpted from our recent article, Taking the Temperatures of Bay Area Real Estate Markets. The full report includes 5 other charts, all of them fascinating.
These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and how they apply to any specific property is unknown without a tailored comparative market analysis. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier, i.e. they are a month or so behind what’s actually occurring in the market as buyers and sellers make deals. All numbers should be considered approximate.
Across the Bay Area, how many listings sell without price reductions, how quickly do they sell, and at what percentage of asking price? What role does employment play in the real estate market? Which are the biggest and smallest county markets, and how do prices and rents compare?
The white-hot – some would say overheated – core of the Bay Area homes market is San Francisco and Silicon Valley, and the heat radiates out from there, diminishing as one gets further away. This core is defined by the incredible strength of the economy, much of it supercharged by the high-tech boom. However, there are also cultural and lifestyle factors, as well as what might be called the creativity/innovation-cluster effect, all of which have almost gravitational attractions. Indeed, San Francisco is almost a perfect example of the “super city” concept, drawing in people from all over the country and the world like a giant magnet.
Because it’s close and a (relatively) easy commute to these areas, and so affordable by comparison, Alameda County (which includes Oakland) is also crazy hot. Marin has a strong market but is less feverish, firstly because getting to Silicon Valley isn’t as easy – one has to fight one’s way across the whole city to get to Highways 101 and 280 south – secondly, because it’s a very wealthy and expensive county, so it doesn’t offer quite the attraction of big home price discounts, and perhaps thirdly, because Marin has the highest median age in the Bay Area (45 years), and much of the high-tech employment boom is characterized by (pre-family forming) youth who prefer a more urban environment.
As one gets further north, east and south of the inner core, the markets become less overheated: It’s not that these markets are weak – in fact, some are quite hot and they’ve all been strengthening for the last 3 years. It’s simply that they’re not characterized by a feeding frenzy of almost overwhelming demand meeting limited inventory. Except for sellers eager to maximize their homes’ sales prices, that’s not necessarily a bad thing.
It should be noted that many of the charts below reflect February sales data. Generally speaking, Bay Area markets have become significantly hotter as the calendar gets deeper into prime spring selling season.
Most of these charts speak for themselves, so we’ve kept commentary to a minimum.
As an illustration of perhaps the Bay Area’s most important market dynamic, this chart below delineates new job creation over the past 6 years. In San Francisco, for example, there are over 95,000 more employed residents than in 2009, and according to the San Francisco Business Times (3/6/15), there are currently 8600 unfilled software engineer positions in the city. During the same 6-year period, approximately 10,000 new housing units were built in the city. That ratio of new employment to new housing equals a desperately competitive housing market.
Other factors play important roles in the Bay Area markets – such as affluence and education levels – and many of these are assessed on a county by county basis in our 2014 report on San Francisco Bay Area Demographics.
And updated maps of comparative home values around the Bay Area can be found here:Bay Area Home Price Maps