“If I knew where I was going to live for the next five years or 10 years, I’d buy a home and I’d finance it with a 30-year mortgage. It’s a terrific deal — If I had a way of buying a couple hundred thousand single-family homes — I would load up on them. And I would take mortgages out on them at very low rates — [With] a 30-year mortgage — it’s a leveraged way of owning a very cheap asset now. That’s as attractive an investment as you can make.”
Warren Buffet, February 27th CNBC Interview on Investing
In January, we suggested that the San Francisco real estate market turned a corner in 2011, and indeed that we might be at a point similar to 1996, when the market began to accelerate after the 4-5 years of down market in the early nineties. (See the Case-Shiller chart below.) Consumer confidence, buyer demand and general economic conditions in the city improved markedly last year, and we also experienced surging high-tech employment and wealth (which looks likely to continue), skyrocketing rents, climbing stock market values and the lowest interest rates in history.
Everything we’ve seen since 2012 began only reinforces January’s conclusion. The major statistical measures of supply and demand – which constitute the dynamics that ultimately result in changes in value – show a market dramatically accelerating. Besides the statistics, this is also what we’re viscerally experiencing on the street, in the day-to-day business of representing our clients buy and sell real estate.
San Francisco often performs differently from other markets in the Bay Area, state and country, and this is the case now: our market is recovering sooner and more rapidly than most. (Though we do see signs of recovery in other markets as well.) However, the city itself is full of neighborhood micro-markets, which are recovering at widely varying speeds — or in some cases, not yet recovering. In real estate, generalizations only take one so far: ultimately, it always boils down to the specific home in its specific location with its specific conditions and circumstances, and the buyer demand for such a property.
All data herein is from sources deemed reliable but may contain errors, and is subject to revision.
Months’ Supply of Inventory (MSI)
MSI is a measure of how long it would take to sell the existing inventory of homes for sale at current market conditions: the lower the MSI, the stronger the demand as compared to supply. For every property type in San Francisco, MSI is either at its lowest reading ever, or very, very close to it. Any reading below 3-4 months of inventory is typically considered a “Sellers’ market.” All SF property types now register as strong Sellers’ markets, though conditions do vary by neighborhood. Nationally, MSI has also fallen, but it is still over 6 months of inventory.
Percentage of Listings Accepting Offers (by MONTH)
This is another excellent measure of demand vs. supply – the higher the percentage, the stronger the demand as compared to the supply of homes available to purchase. This measure increased dramatically in 2011 when compared to previous years, but since 2012, it has skyrocketed to levels we can’t remember ever seeing. The competition for reasonably priced, general-appeal homes is ferocious in many areas of the city, and multiple offer situations are more common now than they’ve been in at least 5 years.
Percentage of Listings Accepting Offers (by WEEK)
Typically, in the first 6 -8 weeks of the new year, the market just starts to wake up. Not in 2012. This chart looks at the market WEEK by WEEK for the six months ending February 26th. In mid-January, demand exploded. And remember that the percentages for the last 4 months of 2011 were already much higher than in previous years. Many properties are selling immediately upon coming on market and the number of new listings is not coming close to meeting demand. This creates upward pressure on prices.
SF Homes for Sale
On any given day, the inventory of listings available to purchase is dramatically below the levels of previous years, typically by 30%-50%. And yet the number of highly qualified and motivated buyers entering the market is increasing. Year over year, February’s closed unit sales were up about 14%, but on a hugely reduced inventory of available listings. If inventory was nearer normal levels, the number of sales would be much higher. In the meantime, the market has become very competitive in many parts in the city.
Case-Shiller High-Tier Home Price Index
This Index ended 2011 pretty much where it began. The Index tracks house sales in a 5-county SF “Metro Area”, of which the city’s sales are only a small percentage. Even as our market has begun a recovery, the Index is pulled down by the other counties’ market conditions (not as positive as the city’s). The C-S High-Tier Price Index applies to the city best, but it still doesn’t apply all that well: for the 5-county Metro Area, the top third tier of sales in December 2011 started at $573,000; the city’s top third last year started at $860,000. (And it’s much higher in the city’s central and northern districts.) The higher the price segment, the less affected it is by distress sales; such sales cluster in the less affluent segments and significantly depress market conditions there. The 2012 SF market may be in a similar place to that of 1996, i.e. starting to accelerate after 4-5 years of decline or doldrums.
Noe Valley-Castro-Cole Valley Market
Realtor District 5, in the center of the city, is one of the areas where the market has changed most dramatically – to some extent, due to being highly sought after by high-tech employees working both inside and outside the city. Though median sales price is an imperfect signifier of changes in values, and can fluctuate for a number of reasons, we believe in this case it generally reflects market reality. Huge buyer demand and extremely low inventory in District 5 are pushing prices higher: the median sales prices for both houses and condos have risen to their highest points since 2008. Click here for our full report.
SoMa-South Beach-Yerba Buena-Mission Bay
The greater South of Market area is another one of the city’s markets that is noticeably heating up – again, to a large extent, due to surging high- tech employment and wealth. The supply of brand new condos for sale has dwindled since 2008, helping to create the biggest inventory crunch since this area started to be developed in the mid- nineties. This is exerting upward pressure on prices. For our complete report:
SoMa-South Beach Market Analysis
Average Days on Market (DOM)
This statistic is easily distorted by a relatively small number of sales that sell after being on the market for a long time, and large fluctuations are not unusual. It certainly doesn’t reflect the average days on market for well-priced, well-prepared, well-marketed, general-appeal homes, which often accept offers within 1 or 2 weeks of going on market. Still, for what it’s worth, average DOM fell to its lowest point in years in February.
SF Statistics by Neighborhood
We recently completed our semi- annual review of non-distress home sales by neighborhood; property type; bedroom count; low, high and median price; average size and average dollar per square foot. (Mixing distress and non- distress sales creates misleading statistics for both categories, so we separate them out.) This is just one of eight charts. For our complete report:
San Francisco Neighborhood Values
What SF Buyers Bought in 2011
If you didn’t see our data-mining analysis of 2011 home sales in San Francisco, here is one panel of 14. You can find the full report, full of surprising details, here:
What Buyers Bought in 2011
Mortgage Interest Rates
The impact that lower interest rates have on the ongoing cost of home ownership, especially when doing a rent vs. buy analysis in a city of soaring rents, can’t be overstated. Here, once again, is a graph of just how dramatic the changes have been in recent years. Courtesy of Julian Hebron of RPM Mortgage.
How many San Franciscans: Trace their ancestry from China, Ireland, Mexico or the Philippines? Are children under 5? Speak Spanish at home? Have their cars stolen? Are heterosexual or gay? Divorced? Live alone? Give birth each year? Vote Libertarian? Earn over $200,000/year? Have graduate degrees? There is no city in the world quite like San Francisco – and here are some of the details.
Of all the homes bought and sold in San Francisco in 2011:
- How many had Golden Gate, Bay Bridge, downtown or ocean views?
- How many were Victorian, Edwardian, Art Deco, Spanish Mediterranean or brand spanking new?
- How many had elevators or pools, wine cellars, doorpersons or in-law apartments?
- How many were probate sales, bank sales or short sales?
- And what were the biggest sales in the Sunset, Noe Valley, SoMa and Pacific Heights?
We data-mined all of 2011′s MLS sales to answer these questions and more. We hope you find the details as interesting as we did.
All data herein is from sources deemed (at least somewhat) reliable – i.e. the information input by listing agents regarding their own listings — but may contain errors and omissions, and is subject to revision. These charts do not include sales unreported to MLS.
It seems to be part of the human condition that financial and real estate markets go in cycles. What’s interesting is that when the cycle is on the upswing or a bubble is inflating, how vociferous the opinions are that the upswing will never end; and how after the crash, how many then insist, often with great virulence, that the markets will never improve again in our lifetimes. We see variations of this forecasting certitude constantly from those emotionally or financially invested in a certain viewpoint, not to mention bloggers and media with infinite white space to fill – and, of course, real estate agents often do this as well. However, most of the time, one must simply wait and see how the cycles turn in their own time and circumstances, and turning points are best perceived in retrospect.
All this leads to our point: absent some new natural or economic disaster – which is certainly possible – it appears that San Francisco real estate began turning the corner on the latest down cycle in 2011. Two and a half years following the financial markets crash, the dynamics in the city started to change early last year: prices seemed to have bottomed out and stabilized, Bay Area and city economic conditions started to markedly improve, distress home listings began to decrease, interest rates hit new lows, SF rents increased, vacancy rates dwindled, builders started moving forward on new projects, general optimism grew (most dramatically in the last quarter) – and optimism plays a huge role in turnarounds – and the financials of home buying made more sense than they had in many years.
Indeed in 2011, the biggest story regarding the SF homes market was the drastic lack of inventory – typically 35-45% below the previous year – which was inadequate to satisfy surging buyer demand. Historically, according to the laws of supply and demand, this begins to put upward pressure on prices – which is what we’ve been beginning to see in some of our neighborhoods.
It should be noted that San Francisco often behaves differently than other markets and recovers more quickly, and also that within the city itself, the markets in different neighborhoods can move at different speeds or even, for periods of time, in different directions. There is a link at the bottom of the newsletter to far more detailed analyses of the SF market by neighborhood, property type and bedroom count. There are also definitions and caveats regarding the statistics used below.
Statistics are generalities that may fluctuate for a number of reasons. All data herein is from sources deemed reliable but may contain errors and omissions and is subject to revision. These charts do not include sales not reported to MLS, such as occur in some new-development projects. How any statistic relates to the value of any specific property is unknown without further analysis.
2011 Unit Sales
The number of sales as reported to MLS climbed about 7% in 2011 from 2010, bouncing back from the trough of 2009, though still far below the peak years. All SF property types saw increases in sales. However, if inventory had not been so drastically low all year long, the increase in unit sales would certainly have been much greater.
S&P Case-Shiller Home Price Index
If Case-Shiller did an Index just for the city of San Francisco itself, instead of the 5-county “Metro Area,” we believe it would indicate a significantly greater recovery than indicated in this chart. San Francisco is strongly outperforming the markets in the other counties included in their local Index. (And SF itself only makes up a small percentage of that Index.) For a more detailed explanation of the S&P Case-Shiller Index:
Average Dollar per Square Foot Values
Looking at the last 6 quarters, we see a very gradual increase from mid- 2010 of average-dollar-per-square-foot values for SF houses of $750,000 and above, except for the hiccup which occurred during the 3rd quarter of 2011 when the European debt crisis and the U.S. debt limit boondoggle greatly increased financial anxieties. The latest quarter saw the highest value, by a tad, since 2008. This chart also shows how the market is divided between the lower-priced housing segment (for SF) hard hit by distress sales and the mid-to-high priced segment which has been little affected by distress sales. Remember that quarterly fluctuations of average and median figures are not particularly meaningful – what are important are consistent longer term trends.
Percentage of Listings Accepting Offers
The main 3 residential property types in the city have been hitting their highest percentages in recent memory for listings going into contract (accepting offers). This is a very clear graphic of the dynamic of very strong buyer demand meeting a very low inventory of homes available to purchase. The dip in the third quarter was, as mentioned, probably due to the burst of financial markets anxieties that occurred over the summer.
Sales Price to Original List Price
This chart shows the enormous difference that proper pricing, preparation and marketing make in achieving the highest sales price in the lowest amount of time. Most of the homes that do sell actually accept offers relatively quickly at very close to, or even a little over, the list price. About half as many sell after price reductions, with big discounts on list price and large delays in closing the sale. And then, even in a market of strong buyer demand, about a third of listings expire or are withdrawn without selling, typically due to being perceived as overpriced.
Months Supply of Inventory (MSI)
MSI measures how long it would take to sell the entire inventory of homes currently for sale, at existing market-activity rates. The lower the MSI, the stronger the demand as compared to supply: We don’t recall ever seeing overall MSI rates this low. As a comparison, the MSI in the United States as a whole right now is 7 months. In certain SF market segments, the MSI is down to 1.5 months or lower. In the 4th quarter, there was a story of one listing, admitted egregiously underpriced, receiving 26 offers – which gives an idea of the level of unsatisfied demand in some neighborhoods.
Number of Homes for Sale
This chart tracks the number of homes listed as available on MLS on the last day of each month. It is true that inventory always plunges during the holidays and then starts to recover in January, but throughout 2011 the number of homes available to purchase in any given month has been far below the levels of previous years. And if one factors in the huge decline over the last few years in new-development condos on the market, it looks even worse. Inadequate to buyer demand, this has led to an increase in multiple offers and buyer stress — and increasing values in some of the city’s neighborhoods.
SF Luxury Home Sales in 2011
Homes selling for $1,500,000 and above make up about 10% of San Francisco’s sales and this is a snapshot of where they occurred by neighborhood and property type. For houses, the biggest prices still come in the Pacific/ Presidio Heights area, where one mansion on Broadway sold for $29,500,000. For condos, the highest dollar-per-square-foot figures are found in Russian Hill and South Beach for luxury units with astounding views: a penthouse in the St. Regis in South Beach/ Yerba Buena sold for $28,000,000. But in number of sales, the central Noe Valley/ Castro/ Cole Valley district has grown immensely over the past 10 years and is now firmly established for a particular type of affluent buyer, many of whom want easier access to Silicon Valley.
SF Distress Home Sales
As a percentage of sales, distress home sales peaked in January 2011; overall, they made up about 20% of total unit sales last year, but were largely clustered in certain neighborhoods, often in the less affluent areas of the city, and in the lower price ranges. To a large degree, they have not impacted values in many of the city’s more affluent central and northern districts. As seen here, the number of such listings has been markedly declining in 2011. Compared to other areas of the Bay Area, state and country, SF has been relatively unaffected by foreclosures, and so far the much dreaded “shadow inventory” of foreclosed-upon home listings has never arrived in the city.
SF Home Sales by Price Range
The largest percentage of SF home sales occurs in the $500,000 to $750,000 range. One of the biggest changes over the past few years has been the enormous growth in unit sales in the under-$500,000 price segment, much of which has been driven by distress sales. Even from 2010 to 2011, the lower end price segment has increased as a percentage of sales – and this continues to impact overall median sales price, which is simply that price at which half the homes sold for more and half for less.
Average Days on Market (DOM)
This chart shows the large difference in how long it takes to sell distress homes as compared to regular homes (about a month longer); the effect that pricing, preparing and marketing the home correctly can make in days on market (over two months); and the different speeds of sale for the 3 main residential property types. (Distress sales are not broken out for TICs, because they have been relatively unaffected by foreclosures.) General appeal homes that are effectively priced, presented and marketed often receive offers within 2-3 weeks of coming on market.
How Buyers Find the Homes They Purchase
A simple graphic of how things have changed in real estate buying and marketing in the past 10 years. An effective marketing plan has to include very comprehensive components of high-quality online marketing and broker-to-broker marketing – this is what reaches by far the most buyers. Professionally taken real estate photos are now an absolute necessity since they are how most buyers and agents will first see and evaluate your home. (All Paragon listings are photographed by professional real estate photographers.) Effective neighborhood marketing and open houses come next. The value of print advertising in newspapers and real estate magazines has become negligible.
Mortgage Interest Rates
Between the decline in prices since 2007-2008 and the decline in interest rates, the monthly cost of owning the same home has generally declined 30-40% in San Francisco over the past 4-5 years. (Chart below is from Bankrate.com.) Conversely, SF apartment rents have been increasing lately (especially due to the growth of high-tech employment). One of the standard ways economists evaluate whether a real estate market is correctly priced or not is by comparing the cost of renting vs. the cost of owning the same home. This equation has gone through a huge change since 2008.
“There are three kinds of lies: lies, damned lies and statistics.”
Statistics without informed context are usually worthless, easily manipulated and often misleading.
One can make virtually any case — positive or negative — by choosing a single average or median statistic relating to a short period of time and a small data set, and then cherry picking what you’re comparing today’s data to (last month, last year, or the peak of the market). Conversely, too large a data set may be misleading: the overall national trend may misrepresent California’s, and the state’s can be different from the Bay Area’s, the Bay Area’s from the city’s, and within San Francisco itself, distinct neighborhoods are often different markets going in significantly different directions.
In particular, absent some huge economic event, such as the September 2008 financial markets meltdown, monthly fluctuations in median home sales prices are usually meaningless. Median prices often fluctuate up and down within a 5 to 10% range from one month to the next, even in stable markets.
One can only be sure market values are trending up or down if that trend is consistent over the longer term, minimally 4 to 6 months. Any definitive trend in prices and values should also be reflected in other market statistics such as average dollar per square foot, days on market, months’ supply of inventory, percentage of listings accepting offers, percentage of distress sales, and so on.
When assessing market changes calculated by computerized algorithms using very general data sets – such as Case Shiller’s or Zillow’s — one should be clear on the details. For example, the Case Shiller Index for “San Francisco” reflects an analysis of a “metro area” comprising 5 counties with wildly varying markets (Pinole to Pacific Heights). And for the city of San Francisco, one should look at the Case-Shiller “High Tier” price Index, not the general Index. It also makes sense to assume a sensible margin in error. As an egregious example, Zillow’s property valuations usually build in a 10-25% margin of error on either side of their “Zestimate” of value. A 1-3% value change indicated by the Case Shiller overall home Index for the SF metro area, then applied by a commentator to condo values in SOMA or house values in the Marina, should be taken with a grain of salt.
Always look for consistent, longer term trends across a wide range of market quantifying statistics.
MEDIAN SALES PRICE is that price at which half the sales occur for more and half for less. It can be, and often is, affected by other factors besides changes in market values, such as short-term or seasonal changes in inventory or buying trends. The median sales price for homes (in all their infinite variety) is not like the price for a share of stock (all the same), and monthly fluctuations in median price are generally meaningless. If market values are truly changing, the median price will consistently rise or sink over a longer term than just 2 or 3 months, and also be supported by other supply and demand statistical trends.
AVERAGE SALES PRICE is calculated by adding up all the sales prices and dividing by the number of sales. It is different from median sales price, but like medians, averages can be affected by other factors besides changes in value, such as fluctuations in average unit size. Averages may also be distorted by a few sales that are abnormally high or low, especially when the number of sales is low. Average sales prices are usually higher than median sales prices.
DAYS ON MARKET (DOM) are the number of days between a listing going on market and accepting an offer. The lower the average days on market figure, typically the stronger the buyer demand and the hotter the market. Note that this statistic is distorted by distress sales, which often have a very high DOM, by that minority percentage of listings that sell after multiple price reductions, and by deals that fall through after offer acceptance (the listings come back on market, but the DOM clock keeping ticking). Appealing, well-priced new listings often accept offers within 7 to 14 days of coming on market.
MONTHS SUPPLY OF INVENTORY (MSI) reflects the number of months it would take to sell the existing inventory of homes for sale at current market conditions. The lower the MSI, the stronger the demand as compared to the supply and the hotter the market. Typically, below 3-4 months of inventory is considered a “Seller’s market”, 4-6 months a relatively balanced market, and above 6 months, a “Buyer’s market.”
DOLLAR PER SQUARE FOOT ($/sqft) is based upon the home’s interior living space and does not include garages, unfinished attics and basements, rooms built without permit, lot size, or patios and decks — though all these can still add value to a home. These figures are usually derived from appraisals or tax records, but are sometimes unreliable or unreported altogether. Generally speaking, about 60-80% of listings report square footage and dollar per square foot averages are calculated on these listings alone. All things being equal, a house will sell for a higher dollar per square foot than a condo (due to land value), a condo higher than a TIC (quality of title), and a TIC higher than a multi-unit building (quality of use). Everything being equal, a smaller home will sell for a higher $/sqft than a larger one. (However, things are rarely equal in real estate.) There are often surprisingly wide variations of value within neighborhoods and averages may be distorted by one or two sales substantially higher or lower than the norm, especially when the total number of sales is small. Location, condition, amenities, parking, views, lot size & outdoor space all affect $/sqft home values. Typically, the highest dollar per square foot figures in San Francisco are achieved by penthouse condos with utterly spectacular views in prestige buildings.
SAN FRANCISCO REALTOR DISTRICTS
District 1: Sea Cliff, Lake Street, Richmond (Inner, Central, Outer), Jordan Park/Laurel Heights, Lone Mountain
District 2: Sunset & Parkside (Inner, Central, Outer), Golden Gate Heights
District 3: Lake Shore, Lakeside, Merced Manor, Merced Heights, Ingleside, Ingleside Heights, Oceanview
District 4: St. Francis Wood, Forest Hill, West Portal, Forest Knolls, Diamond Heights, Midtown Terrace, Miraloma Park, Sunnyside, Balboa Terrace, Ingleside Terrace, Mt. Davidson Manor, Sherwood Forest, Monterey Heights, Westwood Highlands
District 5: Noe Valley, Eureka Valley (Castro, Liberty Hill), Cole Valley, Glen Park, Corona Heights, Clarendon Heights, Ashbury Heights, Buena Vista Park, Haight Ashbury, Duboce Triangle, Twin Peaks, Mission Dolores, Parnassus Heights
District 6: Hayes Valley, North of Panhandle (NOPA), Alamo Square, Western Addition, Anza Vista, Lower Pacific Heights
District 7: Pacific Heights, Presidio Heights, Cow Hollow, Marina
District 8: Russian Hill, Nob Hill, Telegraph Hill, North Beach, Financial District, North Waterfront, Downtown, Van Ness/ Civic Center, Tenderloin
District 9: SoMa, South Beach, Mission Bay, Potrero Hill, Dogpatch, Bernal Heights, Inner Mission, Yerba Buena
District 10: Bayview, Bayview Heights, Excelsior, Portola, Visitacion Valley, Silver Terrace, Mission Terrace, Crocker Amazon, Outer Mission
Some Realtor districts contain neighborhoods that are relatively homogeneous in general home values, such as districts 5 and 7, and others contain neighborhoods of wildly different values, such as district 8 which includes both Russian Hill and the Tenderloin.
Note: You may skip the analysis below and jump straight to the market dynamics charts following.
For the past 2 years, new predictions for additional, significant (10-30%) price declines – the so-called double-dip in home values – have been made on an almost weekly basis. The reasons: turmoil in financial markets, foreclosures, shadow inventory, debt crises, jobs, China, oil, the groundhog saw its shadow. For many of these pundits, analysts and bloggers, the market is always bad and about to get worse. Good stuff for headlines. Frankly, it’s a little disturbing how many people take pleasure in, even gloat over, the idea of everything always getting worse. (See the comments section on any online real estate article.)
That is not to say they’re never right, much less those real estate agents who believe it’s always “the best time to buy.or sell.” What’s missing most often from the articles, blogs and predictions is context; in-depth market expertise; and understanding of location, inventory, seasonality and how buying trends can change (without necessarily affecting values). Instead, typically a single statistic, poorly understood, is seized upon to trumpet a conclusive unified theory of US, California, Bay Area or SF markets.
What will happen tomorrow in the San Francisco home market? Don’t know. Has there been a significant decrease in values since prices stabilized after the big decline of late 2008? No. Is a double-dip possible? Yes, the future is full of unknowns.
But is a double-dip likely?
Ever since the large drop from 2007-2008 peak values – 15% – 25% in most of the city’s neighborhoods – median prices in SF have been generally stable: indeed, median prices for both houses and condos in 2009 vs. 2010 were virtually unchanged. Which suggests we may have hit the bottom of this cycle. Also, San Francisco, especially its better neighborhoods, has a miniscule rate of foreclosures when compared to the state and Bay Area overall. Though some of our least affluent neighborhoods were badly hit, the predicted tsunami of foreclosures never arrived, and it seems unlikely to show up now.
MONTHLY FLUCTUATIONS IN MEDIAN PRICE ARE MEANINGLESS.
Even in a stable market, median prices will jog up and down by 1-5%, because there are a number of factors besides value which affect them in the short term. It is what occurs consistently over the longer term that indicates a verified market trend. The computer generated algorithm one constantly hears about, the Case-Shiller index, may be the best available, but is still a very blunt analytical tool for something as diverse as the values of specific (relatively unique) homes in specific (relatively unique) locations. Yet it’s treated as a precision measurement – “According to Case-Shiller, home values fell [exactly] 3.7% last month” – when, at minimum, a 5% +/- margin of error should be assumed.
Consider this: the Case-Shiller index for the “San Francisco Metro Area” comprises 5 counties, encompassing wildly different markets from Pacific Heights to Martinez, Hillsborough to the Tenderloin, areas with 50%+ foreclosure rates and those with less than 3%, but every month, a percentage change calculated to one tenth of one percent is delivered as generally applicable to all.
To be repeated endlessly in articles and blogs as gospel truth.
If the market is indeed strengthening, instead of being on the cusp of another crash, what might be the reasons?
- 1. A growing suspicion that, 2 ½ years after the crash, the SF market has bottomed out price wise. If true, that makes it an excellent time to invest.
2. Indications that consumer optimism about the economy has finally turned a corner. Nothing impacts market dynamics more.
3. Very low interest rates that have recently started to rise. (Very motivating for buyers.)
4. Reduced inventory: among other things, the city’s flood of new condo units over the past decade is slowing to a trickle, and that will not change for years.
5. An influx of young, new buyers, from Bay Area companies such as facebook, Google, Apple, Twitter and Zynga, who strongly desire to live in San Francisco. And who suddenly have a lot of money.
6. The stock market: SF buyers are relatively affluent (by necessity considering our prices); when the stock market climbs considerably, as it has, they benefit most.
7. That old canard: San Francisco is one of the most beautiful cities in the world. It is only 7 miles by 7 miles and cannot grow larger. SF is the center for flourishing high-tech, biotech and financial industries in one of the most educated and affluent areas on the planet. Our market has always been different: it usually declines last and recovers first.
Statistics without informed context are worthless. (“There are 3 kinds of lies: lies, damned lies and statistics.”) Below are charts of market activity in San Francisco, as reported to MLS, within the context of longer term trends. They look at the SF home market by 9 different statistical parameters. The median price charts and the distress sales chart show long term stability. Every single one of the other market dynamics charts describes a strengthening market.
Still, predicting the future is tricky. And it’s still too early to identify a lasting, definitive trend. As always, it is up to you to reach your own conclusions and act accordingly.
Statistics are generalities, subject to fluctuation due to a variety of reasons. Sales not reported to MLS are not included in this analysis. All information herein is derived from sources deemed reliable, but may contain errors and omissions, and is not warranted.
Percent of SF Listings Accepting Offers
Due to strong buyer demand and relatively low inventory levels, February saw the highest percentage of listings accepting offers in years. This chart is for SF house and condo sales.
Months’ Supply of Inventory (MSI)
Months’ Supply of Inventory measures how long it would take to sell the existing inventory of homes for sale at current rates of activity. The lower the MSI, the stronger the market. This chart measures MSI for SF houses and condos. At 2.6 months of inventory, February 2011 saw the lowest MSI in years.
SF Homes for Sale
The number of homes for sale remains relatively low even for February.
New Listings Coming on Market
The number of new listings coming on market remains relatively low.
click for larger image
Average Days on Market
Days on market measures how long it takes a listing to accept an offer. The average is often distorted by a relatively small percentage of listings that take a very long time to sell. Over 60% of SF home listings accepting offers actually do so within 7 to 30 days. In any case, February’s figure was among the lowest in the past 2 years.
Distress Home Sales
This chart shows the number of bank-owned sales and short sales of SF condos and houses. For the past 20 months that number has generally fluctuated between about 60 and 70, and has shown no signs of dramatically increasing. Most of these sales occur in the lower price ranges and often in the least affluent neighborhoods — hit hardest by foreclosures. The more affluent SF neighborhoods have not been significantly affected by distress sales.
Median Sales Prices for 2-3 BR Houses
This chart shows the median sales price for 2 & 3 bedroom houses in SF, by quarter, over the past 3 years. After the big decline of late 2008/ early 2009, the median price has stayed within about a 5% margin for 7 quarters. The median for the 4th quarter of 2010 was virtually the same as that of 3 other quarters, with the other 3 a bit up or down. The chart shows a remarkable stability in median sales price over a long term period of sales.
Median Sales Prices for 2 BR Condos
The same median sales price stability shown in the previous chart for SF houses also shows up for 2 bedroom condos in San Francisco. Again, the big decline in late 2008, and the relatively minor ups and down since. The median price in the 4th quarter of 2010 was virtually the same as 3 other quarters, with the other 4 quarters being slightly lower.
Sales Price to Original List Price by Price Reductions
The darker bars show the percentage of sales price to original list price of houses that accepted offers without a price reduction. These homes typically sold quickly and, on average, for a tiny bit over the asking price. This reflects the majority of houses accepting offers in any given month. The lighter lines show the discount to original list price when a property stays on the market longer and goes through one or more price reductions. Typically, another 30 – 40% of listings expire without selling due to being perceived as overpriced.
SF House & Condo Listings Accepting Offers
Activity by Week: sales activity really picked up since mid-January, with the last week of the month showing the highest number of accepted offers of any week in the past 6 months. In number of listings accepting offers, the full month of January 2011 was up 28% from January of 2010 and up 76% from January 2009 (the market’s nadir). 2010 Overview Analysis
Percentage of House & Condo Listings Accepting Offers
Charted by Week: With buyer demand increasing and relatively low inventory levels, the last week of January saw a spectacular rise in the percentage of listings accepting offers in San Francisco.
SF Home Listings for Sale
The dark red columns show the number of listings for sale at any time during the month; the lighter columns show the number of active listings on the LAST day of the month. Except for December 2010 and December 2009, January 31st saw the lowest number of active listings on the market for the last 25 months. (This chart shows the last 13 months.) Inventory levels should climb dramatically as we move toward spring.
SF New House & Condo Listings
Charted by Week: new listings have been arriving on market in relatively moderate numbers, especially as compared to the beginning of the autumn 2010 season in mid-September. It appears that the number of new listings is not currently meeting buyer demand.
SF Median Home Sales Price
For houses, condos, TICs by Month: as is typical in January, the median home price dropped. This is for 2 main reasons: firstly, for whatever reasons, a greater percentage of buyers of more expensive homes check out once the holiday season begins in mid-late November, and this affects the median sales price for the subsequent months of closings. Secondly, while many sellers pull their listings from the market for the holidays, banks do not: bank-owned home sales thus climb as a percentage of sales, and since bank-owned sales are heavily clustered at the lower price points, that drags the median price as well. January’s median sales price was virtually the same as in January 2010, which is in keeping with the overall stability of median prices in the City over the past 7 quarters. Indeed, despite jogging up and down on a monthly basis, comparing 2010 with 2009, the overall median sales prices for both houses and condos in SF were virtually unchanged. More on SF Median Prices
Months’ Supply of Inventory (MSI)
For SF Houses & Condos by Month: except for April 2010 (with its tax credit crush of sales), the MSI in January was the lowest for the last 13 months, and signficantly below the level of January 2010. If we look at just houses, the strongest selling property type, the MSI drops to a very low 2.8 months of inventory. MSI for bank-owned and short sale homes in SF dropped to an even lower 2 months of inventory, signaling a very hot market for these typically lower-end “distress sale” homes.
SF Distress Home Unit Sales
(By Month) In this chart, distress sales are defined as both bank-owned (REO) property sales and short sales (the lender must agree to a reduced payment on the outstanding loan for the sale to close), though one should note that these are somewhat different animals. In short sales, the seller still lives in the home and it usually does not look “distressed” as is often the case with bank-owned homes. (Short sales can be very time consuming and aggravating, due to the requirement for lender approval.) The monthly number of distress sales has stayed relatively stable in 2010, and though this January’s number was higher than that of January 2010, as a percentage of total sales it was virtually unchanged year over year. As seen in a later chart, distress sales are mostly clustered in the lower price ranges of home sales in the City.
Percentage of Distress Sales by District
The top chart shows the percentage of distress sales (both REO & short sales) by quarter in the less affluent Realtor districts of 3 & 10 (Bayview across to Oceanview), while the lower chart shows the percentage of such sales in the affluent districts of 5 (Noe/ Castro/ Haight) and 7 (Pacific Heights/ Marina). The cross-hatched portion of the column reflects the number of distress sales. In SF, the whole phenomenon of distress sales largely began in late 2008/ early 2009. As one can see, the less affluent districts 3 & 10 have been hugely affected, with the percentage of distress sales running 38% – 45% in the past 4 quarters. The more affluent districts 5 & 7 have been relatively unaffected by distress sales, with the percentage usually running in the 3 – 6% range (and those predominately in the lowest price ranges for homes in those neighborhoods). In both charts, the percentage of distress sales in the 4th quarter of 2010 was the lowest for the year.
2010 Bank-Owned (REO) Home Sales by Price Range
In 2010, homes below $650,000 were much more dramatically affected by foreclosures and the resulting bank-owned home sales than those at the higher price ranges. Under $650,000, the percentage of REO sales is 29% for houses (and then, mostly in the less affluent areas of the city), and 13% for condos. Once above $650,000, the percentage drops to a relatively negligible 3-4% of sales. Above $1 million, it falls to well below 2%, not enough to impact values in these price ranges and the neighborhoods one finds them.
Median Price for SF Distress Sale Homes
Reflecting the fact that most distress sales (both REO & short sales) occur at the lower price ranges, the median price for such sales in the City has been generally running in the $450,000 to $500,000 range, well below the overall median sales price for SF homes (approximately $700,000 when including distress sales; approximately $750,000 when not).
Homes Sold vs. Listings Expired or Withdrawn
The green bars delineate closed sales per month and the purple bars delineate listings expired and withdrawn. While the market has definitely heated up since mid-September, a large number of listings still expire or are withdrawn without selling, typically due to being perceived as overpriced. (December is usually the peak month for expired/ withdrawn listings.) If not priced fairly, as defined by the market, the home typically won’t sell, or even attract offers.
For the past 12 months per Bankrate.com: interest rates have been climbing since their incredible lows in October, though they remain low by historic standards and are roughly comparable to where they stood 8-10 months ago. Many pundits believe rates will continue to increase in 2011. Rate increases could affect the market in two totally different ways: buyers may pull out of the market as the cost of home buying increases, or buyers may rush into the market having come to the conclusion that prices have bottomed out, and they best move quickly before interest rates climb further. Needless to say, interest rates can affect the cost of home ownership very significantly (unless one is paying all cash): an increase of 1 percentage point is roughly comparable to paying a 10% higher purchase price.