Of Seasons, Factors, Prices, Cycles & Trends
in San Francisco Real Estate
July 2014 Mid-Year Market Report by Paragon Real Estate Group
After perhaps the most frenzied market since the gold rush this past spring, in this mid-year report, we’ll step back and look at the San Francisco homes market from a variety of angles. The market typically slows during the summer months due to vacations, family stuff and buyers being exhausted by the spring market. None of which necessarily means that summer might not be a good time to act, since whether buying or sSpringtime Market Dynamics
Springtime Market Dynamics
Why has spring seen such ferocious markets these past few years? Buyers have been jumping aggressively back into the market much earlier in the year and in much greater numbers than sellers, creating a fierce high-demand/low-supply dynamic that fosters competitive bidding. This chart tracks the median house sales price by quarter.
Though there is no doubt that this past spring saw significant jumps in home values, median sales prices are also affected by other factors besides straightforward increases in value, such as seasonality, inventory available to purchase, interest rates and surges in new construction sales and luxury home sales. (See the luxury sales chart later in this report.)
This chart is a simplified, smoothed-out and very approximate look at real estate cycles in San Francisco, illustrating estimated percentage changes in home prices from peak to bottom to peak. The years between these high/low points are depicted here as straight lines, which does not reflect the bumpy reality. This is from our article on underlying factors behind current market conditions (recently featured in the Chronicle business column, “The Bottom Line”): Supply, Demand, Money and Demographics
And as a comparison to the simplified overview above, below is a look at actual average dollar-per-square-foot house values over the last 20 years in the northern Pacific Heights-Marina District of San Francisco. This very expensive area fell less in value than the city as a whole after the 2008 financial markets crash, and since the recovery began has surged well above its previous peak values of 2007.
Sales Prices above List Prices
The large majority of SF home sales this past spring sold quickly, without price reductions and for over asking price. This chart breaks down, by neighborhood, the average percentage over list price those homes sold for: Historically speaking, these are astounding percentages. This statistic will also be affected if large numbers of agents adopt a strategy of underpricing their listings to artificially boost demand. Note that the South Beach-Yerba Buena-Mission Bay district has by far the most listings and sales in the city, and that relative abundance of inventory affects this statistic.
And this chart is an overview of San Francisco’s trend on a month by month basis.
Median Prices by Neighborhood
Comparative values for 3-4 bedroom houses and 2-bedroom condos with parking.
San Francisco Luxury Home Market
This last spring saw the highest volume of SF luxury home sales in history. We just updated our report on this market segment, which was featured on KGO Radio and the front page of the Chronicle’s business section. Below are 2 charts, but the full report can be found here: Luxury Home Report
Average Dollar per Square Foot
Comparative dollar per square foot values by neighborhood and property type.
District Home Sales by Price Range
These are 2 of 14 charts in a full analysis of San Francisco home sales by price range, property type and neighborhood, which gives an idea of the actual sales behind overall median sales prices. The full report is here: District Sales Breakdowns
Months Supply of Inventory, Average Days on Market
& Inventory-Level Trends
Several standard statistical measures of market strength have hit historically low points in the past few months. (Low points = extremely high demand coupled with extremely low supply, which is the classic cause of rising prices.)
Trends in Home Sales by Property Type
Comparing the percentage make-up of San Francisco home sales – house, condo, co-op, TIC and multi-unit properties – between 2008 and 2014: condo sales are way up due to extensive new construction over the past 10-15 years, house sales (as a percentage of total sales) are somewhat down as very few new houses are built in the city, and TIC sales are way down due to political and financing issues.
Neighborhood Map & Realtor Districts
For your convenience, below is a map of San Francisco neighborhoods and a breakdown of neighborhoods in each Realtor district.
SAN FRANCISCO REALTOR DISTRICTS
District 1 (Northwest): Sea Cliff, Lake Street, Richmond (Inner, Central, Outer), Jordan Park/Laurel Heights, Lone Mountain
District 2 (West): Sunset & Parkside (Inner, Central, Outer), Golden Gate Heights
District 3 (Southwest): Lake Shore, Lakeside, Merced Manor, Merced Heights, Ingleside, Ingleside Heights, Oceanview
District 4 (Central SW): 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 (Central): Noe Valley, Eureka Valley/Dolores Heights (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 (Central North): Hayes Valley, North of Panhandle (NOPA), Alamo Square, Western Addition, Anza Vista, Lower Pacific Heights
District 7 (North): Pacific Heights, Presidio Heights, Cow Hollow, Marina
District 8 (Northeast): Russian Hill, Nob Hill, Telegraph Hill, North Beach, Financial District, North Waterfront, Downtown, Van Ness/ Civic Center, Tenderloin
District 9 (East): SoMa, South Beach, Mission Bay, Potrero Hill, Dogpatch, Bernal Heights, Inner Mission, Yerba Buena
District 10 (Southeast): 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, for example, includes both Russian Hill and the Tenderloin.
June 2014 report by Paragon Real Estate Group
The construction boom that ended in 2008 changed the city and its housing market. Condos now outsell houses in San Francisco. The South Beach-Yerba Buena zip code, previously a commercial area filled with parking lots, now has SF’s highest median household income. Mission Bay was born. And our skyline has been altered with dramatic, new high-rises like the Infinity Towers and Millennium.
That boom died with the 2008 market crash. But now with the city’s economy, employment, population, rents and home prices all surging to new heights, new home construction is booming again.
Will increasing numbers of newly built condos and apartments cool our overheated real estate market? One would think it would have to – eventually. But the large projects announced weekly can take years to turn into actual housing units. What if local high-tech industry, jobs and housing demand continue to grow alongside increasing supply? And our financial and real estate markets are influenced by so many complex, fluctuating economic, political and even natural-event factors, that it is very difficult to make meaningful predictions (despite how much “experts” love to make them).
One thing we can predict: San Francisco will continue to change in unexpected ways, and it will remain an extraordinary place to call home.
San Francisco’s Most Expensive Condo Buildings
Perhaps the biggest common denominators of these properties are dramatic architecture, full service amenities (doormen and such), and the prevalence of spectacular views from many of the units. Eight of these properties didn’t even exist before 2000 and now they dominate the list of most expensive condo buildings in the city. Of course, excluding smaller buildings with only a sale or two per year rules out the vast majority of condo buildings in older neighborhoods, but it’s still astounding to see the impact of the previous construction boom on this market segment.
Luxury Condo, Co-op & TIC Sales by Neighborhood
Condo Values by Era of Construction
Condo Sales Volume by Neighborhood
A residential district that didn’t even exist 20 years ago now dominates condo sales in San Francisco (and there are big, new projects still under development there). To a large degree due to the availability of large, developable (previously commercial) lots and higher-density zoning, new housing construction is now concentrated in areas such as the Market Street and Van Ness corridors, SoMa, the Mission, Hayes Valley, Dogpatch and Hunter’s Point – and often in previously neglected or distressed corners of such areas.
San Francisco Demographics
Income, Age, Homeownership & Foreign-Born Population by Zip Code
San Francisco Median Home Price Trends
The youngest zip codes in San Francisco are those that are 100% rental: the Presidio and Treasure Island. The oldest zip code is the area of the North Waterfront and Barbary Coast, just north of the financial district along the Embarcadero. Second oldest is Chinatown (47 years) and the third oldest is the St. Francis Wood-Miraloma Park area.
and how they apply to any particular property is unknown without a specific comparative market analysis.
Zip Code Demographics Data Table
Zip codes in the table below are in order of median household income.
May 2014 Report
On January 1, 2012, you woke up to find $200,000 on your bedside table, which you decided to invest. Then, on May 2, 2014, you sold your investment. Below are approximate returns depending on where you placed your cash.
Gold: you bought at $1566 per ounce and sold at $1300 per ounce: Bad timing.
Certificate of Deposit: 1% annual interest rate; interest taxed as ordinary income: It seemed like the safe thing to do in an uncertain world.
Stock purchases: Apple stock jumped 46% and the S&P 500 50%; plus an estimated dividend yield of 5%; profit taxed as long-term capital gains. (No transaction costs included in calculation.)
Home purchase: $200,000 down-payment on $1 million home; 35% home-price appreciation per Case-Shiller; 2% closing costs on purchase and 7% on sale deducted from gain. No capital gains tax due to the $250,000/$500,000 exclusion for sale of primary residence. The estimated $28,000 reduction in loan principal was not included in gain, as it pertains to monthly home payments made after initial investment.
It is assumed that the net monthly home cost – principal, interest, property taxes and insurance, after tax deductions and reduction in loan principal – at an estimated $3250/month, was comparable to cost of renting. This has generally been true in San Francisco due to high rents and low interest rates.
There are 3 big reasons why real estate dramatically outperformed the stock market, though both markets boomed: 1) leverage – 35% home-price appreciation equals 175% appreciation of your 20% cash down-payment (before closing costs); 2) big tax deductions subsidize home ownership costs, and 3) the capital gains exclusion on the sale of a primary residence.
Important: Timing is everything in investing. In this analysis, the chosen buy date was January 2, 2012 when the financial and housing markets were poised for big rebounds. Picking a different purchase date, such as January 2, 2008, would completely alter the results. *
White Hot Spring Market
The hotter the competition between buyers, the higher home prices are bid up. The great majority of SF home listings are selling quickly and for over – sometimes far over – asking price.
This link charts the trend over the past 2+ years.
Sales Price over List Price Trend
Current Buyer & Seller Dynamics
Since Paragon does so much business in San Francisco – our Van Ness branch represents more successful SF home-buyers than any other office – we surveyed our agents on what they were seeing in the market. This chart looks at buyers, and this link goes to our full survey report:
Paragon Agent Survey
And this link looks at the “pipeline” of projects under construction or planned for future years:
New Homes Pipeline
Ranking San Francisco
On a lighter note, we recently collected rankings by dozens of “authorities” – some more reliable than others – regarding San Francisco. This link goes to the full list:
The Full Ranking Report
Apartment Building Market Report
We just issued our quarterly update on Bay Area residential investment real estate. This chart looks at current asking rents by neighborhood, and this link goes to the full report:
Paragon Apartment Update
Since opening our doors in 2004, the Paragon Community Fund has donated over $500,000 to local charities and social services. The San Francisco Bay Area isn’t just where we do business; it’s our home and our community.
* The investment analysis above is simply one scenario based on specific circumstances. It was performed in good faith, but may contain errors or assumptions you may disagree with, or may not apply to your specific tax situation. Investment and tax issues should be investigated with a qualified accountant or financial planner.
Of major metro areas, the new Gallup-Healthways survey ranked SF-Oakland second in the nation (behind San Jose-Santa Clara) on their index for “well-being.” Though already the second most densely populated city in the country (after NYC), San Francisco simply has many more people wanting to live here than there are homes available to rent or buy.
This next chart is a look at quarterly median price appreciation over the past 3 years.
When the market recovery began in earnest in early 2012, there were complaints of a shortage in inventory. In 2013, the market grew even more heated and supply declined further to what felt like desperately low levels. Now in 2014, amid no lessening of demand that we perceive, the supply of SF homes available to purchase has dropped again.
Below are two samples, but our full collection of long-term neighborhood analyses can be found here (some updated through the first quarter, others through the end of 2013):
San Francisco Neighborhood Values
Where Can I Afford to Buy in San Francisco
Where You Can Buy for the Money You Want to Spend
San Francisco Home Sales by Neighborhood
You want to buy a house in San Francisco for under a million dollars, or for over $2 million, or you have $1,800,000 to spend on a luxury condo with a spectacular view. If you’re buying a house in San Francisco, your price range effectively determines the possible neighborhoods to consider. That does not apply quite as much to condos and TICs, except for sales in the luxury segment: generally speaking, in neighborhoods with high numbers of condo and TIC sales, there are buying options at a wide range of price points, though, obviously, size and quality will vary. Also, all the new condo projects being built in many different areas of the city is changing the neighborhood pricing dynamic for condos.
For your convenience, a neighborhood map can be found at the bottom of this report.
The charts below are based upon sales reported to MLS in the 12 months between March 1, 2013 and February 28, 2014. We’ve broken out the neighborhoods with the most sales within given price points. There are exceptions to neighborhood norms scattered throughout the city and in an appreciating market these price ranges having been moving upward.
Buying a House for Under $1 million in San Francisco
Out of the approximately 2635 house sales in the past year, about 50% sold for under $1 million. The vast majority of these sales occur in a large swath of neighborhoods forming a giant L shape, down the west side of the city, from Outer Richmond to the border with Daly City, and then sweeping east across the southern side of San Francisco to Bayview and Hunter’s Point. Generally speaking, the western and central-ish neighborhoods cost more than the southern neighborhoods in this under $1m house market.
Houses in these neighborhoods began their recovery from the market downturn a step or two behind more expensive areas in San Francisco, but now the markets here are red hot and very competitive, and home prices are under very strong upward pressure.
Houses for $1 Million to $1.5 Million
In this price point, one moves into a big circle of neighborhoods in the middle of the city plus the Richmond District in the northwest. Within this circle, one will typically get significantly more house for one’s money in the Sunset, Central and Outer Richmond, Miraloma Park or Bernal Heights than in Glen Park or Potrero Hill, or especially, Noe or Eureka Valley.
Houses for $1.5 million to $2 million
As the price range goes up, the number of sales begin to narrow. The neighborhoods in this house price range are similar to the previous range, but sales predominate in central Realtor District 5, which comprises the greater Noe- Eureka-Cole Valleys area. District 5 has been a white hot market for the last two years and competition for homes here is ferocious.
Buying a Luxury Home in San Francisco
Rather arbitrarily, houses selling for $2 million and above, and condos, co-ops and TICs selling for $1.5 million and above are designated as luxury home sales in San Francisco: these homes now make up about 14% of total home sales (up from about 10-11% a few years ago). Once again, what you get in different neighborhoods for $2 million can vary widely – a large, immaculate house in one place, a fixer-upper in another.
Luxury home sales in San Francisco are dominated by the swath of established, prestige northern neighborhoods running from Sea Cliff through Pacific Heights and Russian Hill to Telegraph Hill, by the greater Noe-Eureka-Cole Valleys district, and, to a lesser extent, the smaller neighborhoods around St. Francis Wood. For luxury condos, the greater South Beach-Yerba Buena-Mission Bay area has a large and growing presence as big, expensive condo projects have sprouted there over the past 15 years.
Luxury Condo, Co-op and TIC Sales
As one can see, no area has more luxury condo, co-op and TIC sales overall than the Pacific Heights-Marina district, but the Russian Hill-Nob Hill-Financial District area has more sales of $2 million and above, and again the South Beach-Yerba Buena area is the fastest growing luxury condo market and will probably take first position in the not too distant future. The average dollar per square foot values for luxury condos in the major neighborhoods below run $918 in the Noe, Eureka and Cole Valleys district, $961 in the Pacific Heights-Marina district, $1147 in the Russian-Nob-Telegraph Hills district, and $1229 in the greater South Beach-Yerba Buena area (think newer construction, high floor units and spectacular views).
With the construction of new high-end, high-tech-amenity condo projects on Market Street and Van Ness, and in neighborhoods like the Inner Mission, Hayes Valley and Inner Richmond — often selling for more than $1000 per square foot — luxury condos are now spreading into new areas of the city.
Luxury House Sales in San Francisco
It wasn’t so long ago that houses selling in Realtor District 5, the greater Noe/Eureka/Cole Valleys area (which includes Clarendon, Corona and Ashbury Heights), for over $2 million were an exception. But that is certainly not the case any longer. If we looked closer at the sales in the $2 million to $5 million, we’d find the higher end of the range dominated by Realtor District 7, the Pacific Heights-Marina area, the most expensive house market in the city. Though District 5 does see sales in the $3.5 to $5+ million range, most of its luxury houses sell between $2 million and $3.5 million. There are several other significant areas for these high-end houses, such as Lake Street/Sea Cliff, St. Francis Wood/Forest Hill and Lower Pacific Heights.
Most luxury houses in the city were built in the period between 1905 and 1950, reflecting the era of construction dominating these neighborhoods of San Francisco — and a gracious, elegant era it was. However, there are a small number of big, new houses built each year, as well as some beautiful fifties houses scattered here and there, and, of course, many of the older houses have been extensively renovated over the years.
And, as illustrated below, at the very top of the luxury house market, the district of Pacific & Presidio Heights, Cow Hollow and Marina completely dominates sales. Here mansions can sell for up to $20 million or $30 million. Houses in Russian Hill are also exceedingly expensive, but there are very few houses in that area: Russian & Nob Hills are dominated by high-end condos and co-ops. Two additional house sales (both listed by Paragon) in the $5 million to $7 million range closed in Noe Valley in the first half of March 2014 (after the time period of this analysis) — another indication of what’s happening there, often driven by young, high-tech wealth. It should be noted that a fair percentage of these ultra high-end home sales occur privately, outside of MLS, and are not reflected in this chart.
San Francisco Neighborhood Map
March 2014 Report
Upward pressure on home prices is based on one basic dynamic: more demand than there is supply to satisfy it. Various factors can supercharge demand, such as extremely high rents and low interest rates, which make homeownership more attractive, as well as a sudden, large influx of new, affluent buyers (our high-tech boom) piling into what is basically a relatively small, inventory-constrained market. When there are 5, 10 or sometimes 20 qualified buyers chasing after every attractive, reasonably priced, new listing, prices typically go up, sometimes quite quickly.
Last year, after the spring feeding frenzy, the market generally stabilized through the end of the year: It continued to be a strong market by any measure, but prices mostly plateaued, albeit often at new peak levels. We recently speculated on tentative signs that suggested a further market normalization, but now the indicators are pointing in a different direction. The inventory of homes available to purchase on any given day is even lower than before last year’s furious market; buyer demand has emerged from its midwinter hibernation like a hungry bear; and prices are under increasing pressure once again.
The spring selling seasons of 2012 and 2013 saw huge spikes in home price appreciation. Now we enter the third spring since our market recovery began in earnest, and the desire to live in our small, beautiful, expensive city continues unabated. We shall see how it plays out in the coming months.
Median Sales Prices: Heading Up Again
There is an aspect of seasonality to median home prices – typically up in spring, down in summer, up in autumn, down during the holidays — which explains some of the fluctuations seen on this chart, though the upward trend since 2012 began is very clear. It’s common for median prices to fall in January and February: This reflects offers accepted during the holiday season, when the higher end of the market often checks out. But not in 2014: median sales prices for houses and especially condos jumped dramatically in the past two months, which may suggest another white-hot spring market. Note that median sales prices are often affected by other factors besides changes in values, such as inventory, and longer term trends are much more meaningful than short term fluctuations.
This link below illustrates the longer-term trend in median sales prices in San Francisco for houses, condos and TICs, by year since 1993:
Longer Term Trends
3-Bedroom House Values by Neighborhood
This is one of 8 updated tables on San Francisco home values by median and average sales price, and average dollar per square foot. The full analysis looks at houses, condos and TICs by neighborhood and number of bedrooms throughout the city and can be found via this link below. All general statistics typically disguise a huge variety of values in the underlying individual sales, but can give a good idea of comparative home values.
2-Bedroom Condo Values
2-bedroom condo values by median and average sales price, and average dollar per square foot, sorted by neighborhood. Again, the full report can be found here:
Sales Price over Asking Price: A Sudden Spike
Last month, we pointed to the decline in the percentage of sales price over list price for homes selling without price reductions in December and January as a possible indication of a cooling market. February completely reversed that trend (though one should never make too much of one month’s data).
Home Values around the Bay Area
This map illustrates overall median sales prices for houses in cities all over the Bay Area. In San Francisco, median prices by neighborhood can vary from under $500,000 to over $4,000,000; other cities will often display a similarly wide range of home prices in different neighborhoods.
Sales by Property Type: Condos Up, TICs Down
As shown in this first chart, condo sales now outnumber house sales, a trend that will only continue to accelerate as new condo developments are built. Very few new houses are built in San Francisco and they generally simply replace older homes.
This link illustrates the decline in sales for TICs and 2-4 unit buildings, which is occurring due to a variety of factors, including financing issues, rental units converting to TICs, TIC units converting to condos, and complex tenants’ rights and eviction issues.
TIC & 2-4 Unit Building Sales
Case-Shiller Price Trends by Price Segment since 2000
All numbers relate to a January 2000 value of 100: A reading of 182 signifies a home value 82% above that of January 2000. These 3 charts illustrate how different market segments in the 5-county SF metro area had bubbles, crashes and now recoveries of enormously different magnitudes, mostly depending on the impact of subprime lending. The lower the price range, the bigger the bubble and crash. The upper third of sales by price range (far right chart) was affected least by the subprime fiasco and has now basically recovered peak values of 2006-2007. In the city itself, where many of our home sales would constitute an ultra-high price segment, if Case-Shiller broke it out, many of our neighborhoods have risen to new peak values. The lowest price segment (far left chart), more prevalent in other counties, may not recover peak values for years. If one disregarded the different bubbles and crashes, home price appreciation for all three segments since January 2000 is almost exactly the same, in the range of 75% to 82%.
A more detailed report on the Case-Shiller Home Price Index can be found here:
Case-Shiller Index Report
February 2014 San Francisco Market Report
It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts. From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, 3 or 4 are coming in now; where 3 or 4 offers would have arrived, the seller is getting 1. And, according to Broker Metrics, for every 2 listings that accepted offers in December and January, another listing expired or was withdrawn without selling.
The amount of competition deeply affects home price increases.
There are still a very large number of buyers looking at listings online and at open houses. But more of them appear to be first-time buyers and they are proceeding more cautiously. Some buyers are burned out on the multiple-offer bidding frenzies of last year and are reluctant to participate in them. Though the market remains hot by any reasonable standard, by some statistical measures it is cooling. This may reflect a transition or only a lull before the spring sales season begins.
Recently, the investment-property analysis firm Reis speculated that SF apartment-rent growth — which has been extraordinary by any measure, especially in a period of low inflation — will slow despite intense demand and very low vacancy rates, simply because people can’t pay any more. It’s an idea which may or may not be correct or apply to other types of housing costs. Rent rates do play a role in purchase prices as buyers often compare the net housing costs of the two options.
Median Sales Price Appreciation by Neighborhood
In San Francisco, some of the most affluent neighborhoods — such as the Pacific Heights-Marina district and the Noe, Eureka and Cole Valleys district — started their recoveries in the second half of 2011, well before virtually every place else in the city or country. When 2012 began, prices in these districts soared, while other areas played catch up. In 2013, that dynamic flipped: Appreciation rates in comparatively less expensive neighborhoods surged, while slowing in the most affluent areas.
A big part of this is simple affordability: Priced out in one neighborhood (or city), buyers focused on others, similar in ambiance but less costly. Home prices there looked so good in comparison that buyers were willing to bid them up. The huge decline of distressed sales in areas severely affected, such as in Bayview, has had an outsized effect on median sales prices there. Continuing gentrification, as in the Mission, and increasing “luxury” condo construction in less affluent areas have also played parts in this trend. It’s not as if demand plunged in the Pacific Heights-Marina district (or Noe Valley, for that matter). Quite the contrary: its 9% appreciation rate in 2013 translated into the city’s largest median price increase in dollar terms ($300,000). However, in the previous year, this district saw year over year median price appreciation of 25%.
Note that median price appreciation does not perfectly correlate to changes in home values, as it can be affected by a variety of market factors. It does give an approximate sense of market trends.
Percentage of Sales Price above Asking Price
As the market turnaround began in earnest in early 2012, two trends emerged: 1) increasing percentages of sales without any previous reductions in list price, hitting a whopping 90% of sales in May 2013, and 2) sales prices exceeding asking prices by escalating percentages, hitting an incredible average of 9% over list price in June of last year. Both of these highs reflect the ferocious spring 2013 market frenzy. Since then, these statistics dropped, stabilized and have now dropped some more. One shouldn’t make too much of a month or two of data, and it must be noted that the January numbers — 81% of sales occurred before any price reductions, at an average of about 4% over list price — would signify a red hot market at any other place or time, but they are significant drops from those predominating last year. We won’t know whether it’s a seasonal blip or the beginning of a major shift until the spring selling season gets underway.
Case-Shiller Home Price Index: 2012-2013 Appreciation
This chart is updated through November 2013, reflecting the last Index report published by Case-Shiller: It illustrates approximate Bay Area home price appreciation for higher priced homes, which San Francisco’s generally are, over the past 2 years. Spring 2012 and especially spring 2013 saw very large upswings in values, but prices then stabilized and basically plateaued since last summer began. Will this spring bring another increase in prices or has the market exhausted its appreciation momentum for now? We shall soon know. Note that chart numbers refer to January 2000 values designated as 100: 181 signifies home values 81% above that of January 2000.
This link goes to a chart looking at the past 18 years of home price appreciation, illustrating longer term cycles in real estate:
Case-Shiller Index since 1996
Inventory of Homes for Sale
One thing that has not changed in the market is the very low level of homes available to purchase. Historically, inventory usually surges in spring, declines somewhat during the summer, jumps again in autumn (September is typically the single month with the greatest number of new listings) and then plunges dramatically for the holidays and mid-winter. Agents and buyers are desperately hoping for a major surge of new inventory in the next couple months. Generally speaking, low inventory puts upward pressure on prices when buyer demand is healthy.This link looks at Months Supply of Inventory. While still very low — anything under 3 months is typically considered a Sellers’ market — it is climbing. The lower the MSI, the stronger buyer demand is as compared to the supply of homes available to buy, and the more likely prices are to rise.
Months Supply of Inventory
Updated Neighborhood Price Charts
We’ve updated long-term market value charts for several dozen San Francisco neighborhoods. This one is for Bernal Heights, a neighborhood which experienced feverish appreciation in 2013. This link below goes to the webpage containing all these neighborhood charts. Let us know if you can’t easily find one for the neighborhood or property type you’re most interested in.
SF Neighborhood Home Values
Mortgage Interest Rates
Confounding “expert” predictions once again, interest rates in the first week of February fell to their lowest point in almost 3 months, though they were still about 1 percentage point above the historic lows of one year ago. Interest rates play an enormous role in homeownership affordability, and the incredibly low rates of recent years have been a significant factor in the market recovery. They are expected to rise, but then they were expected to jump to 6% or more in 2010 and fell dramatically instead. Where they will go this year is one of the wild cards of the real estate market.
Unusual Spike in Condo Median Sales Price
January is not a high-sales quantity month as its sales mostly reflect accepted-offer activity in December, the slowest month of the year, and monthly median price data is not that reliable as it can fluctuate without great meaningfulness. However, an odd data point came up for median sales prices in January: The median price for SF houses dropped an insignificant amount, from $938,000 in the 4th quarter of 2013 to $928,000 in January (down from a brief spike to $976,000 in the 2nd quarter). However, the median sales price for SF condos made a very big leap from $835,000 in the 4th quarter to $927,500 in January, the highest monthly condo median price ever. Of the 144 January condo sales reported to MLS as of 2/8/14, 45 sold for $1,200,000 or more. This is an unusually high percentage of high-end condo sales, especially for a January — January 2013 had 19 such transactions — and is probably just one of the anomalies we sometimes see in monthly sales data. (We much prefer longer-term data.) We’ll have to watch what happens in future months.
One can never take for granted exactly what is going to happen next in the San Francisco real estate market.
The real estate market recovery started in earnest in 2012 and then went white hot in spring 2013, which resulted in a huge jump in home prices. In the last six months of the year, the market calmed somewhat and prices generally stabilized, but buyer demand remained very strong by historical standards. Economic conditions have continued to improve, household net worth has increased dramatically with rising stock and housing markets, rents remain very high, new construction is soaring and interest rates, after jumping in 2013, are still relatively low. Though it is impossible to predict the future, these factors typically form the foundation of a healthy, active housing market.
In the next few weeks, new listings will start coming on market, buyers will get back in home-search mode and the market will begin to wake up after the holiday hibernation. Then we’ll start to get an inkling of what the new year has in store.
If you missed our survey of what San Francisco homebuyers bought in 2013, you can find it here: 2013 Market Survey. It was reported on by SFGate, KGO Radio and other major media.
This first chart above gives a longer-term overview of city, state and national real estate price trends. Though varying by neighborhood, San Francisco has generally made a complete recovery from the market decline suffered in 2007-2011. Some city neighborhoods surged to new peak values in 2013.
This chart below tracks San Francisco median prices by quarter, illustrating how the rebound in values progressed in steps since the recovery began.
And below, home value changes for Bay Area higher priced homes are charted over the past 2 years according to the S&P Case-Shiller Home Price Index.
Total Home Sales by Year (below).
The quantity of sales in the past two years has been severely constrained by an inadequacy of inventory to meet demand. This, of course, is also a major factor behind price increases.
San Francisco Luxury Home Market
A major component of the recent recovery has been the terrific resurgence in luxury home sales. There are 3 main factors involved: firstly, the affluent have benefited most from the big surge in financial markets, which makes them feel even more affluent; secondly, our local high-tech boom has minted a large number of newly wealthy homebuyers; and finally, the simple increase in prices moves a certain number of home sales into the price categories we typically define as luxury ($1.5m and over for condos, co-ops and TICs; $2m and above for houses).
Home Price Appreciation by Selected Neighborhoods
This chart measures increases in median home prices over the past two years for a number of SF neighborhoods. Median price changes are not exact correlations of value changes, but give an approximate range of appreciation, in this case, about 25% to 30%. Distressed home sales were not included in this analysis as they typically do NOT reflect fair market value; if they had been included, several of these neighborhoods would show much greater percentage price increases since 2011.
And this chart below looks at median sales price appreciation in a few higher priced home segments. Here, we also added the change in dollar per square foot values (though not reflected in the chart columns). Note that appreciation rates between median prices and dollar per square foot can vary in the same neighborhood, which emphasizes that these are general statistics best used for indicating trends and delineating the range of value changes.
2013: Peak & Plateau
This chart is a bit complicated, but illustrates the differences in the heat of the market between 2011 and 2013, and, specifically, the peak of the market frenzy in the second quarter of 2013. In the second quarter, almost every statistical measure reflected the hottest market in recent memory: fewest price reductions and expired listings, lowest days on market, highest percentage of sales over list price, lowest interest rates in history, and so on. In the two quarters after, the market slowed and plateaued, but remained quite strong – as one can see by comparing them with 2011.
Selected 2013 Neighborhood & District Snapshots
South Beach-SoMa-Yerba Buena-Mission Bay
Above is a look at the biggest condo market segment in the city, where the vast majority of new condo construction has occurred and is continuing to occur. Condos of every price range are found here, including a very substantial ultra-luxury component with extremely high dollar per square foot values (and typically with utterly spectacular views).
Potrero Hill, Bernal Heights and Inner Mission markets
Noe-Eureka-Cole Valleys District Snapshot
An overview of house, condo and TIC sales in this very hot central district of the city.
Pacific & Presidio Heights, Cow Hollow and Marina
The highest house prices in the Bay Area.
Russian, Nob & Telegraph Hills
Some of the most expensive condos in San Francisco are located in this district.
Mortgage Interest Rates
2014 started with a 30-year conforming interest rate of 4.5%, which is about a full percentage point above the historic lows one year ago. This affects the cost of homeownership significantly (if one is getting a loan), but the rate is still quite low in the context of the past 30 years.
Government Shutdown & Default Fears Affect SF Homes Market
Paragon Real Estate Report, November 2013
The number of home listings accepting offers was way down in October (when it usually goes up); months-supply-of-inventory was significantly up (when it usually goes down in October); average days on market were still very low; median sales price was generally stable: The San Francisco real estate market is currently delivering a wide variety of signals, some of them undoubtedly influenced by the U.S. government shutdown fiasco, which dominated the first 3 weeks of last month.
Percentage of Listings Accepting Offers
October is usually one of the busiest months of the year for buyers purchasing new homes – as measured by having their offers accepted – as they react to the surge of new listings that typically arrives after Labor Day. But the government shutdown and the threat of U.S. default hammered October’s activity as SF buyers nervously waited to see how it was going to shake out. Surveys show that the affluent were the group most concerned about a possible default – and SF is a very affluent home-buying market. In this chart, the plunge in the percentage of listings accepting offers is well illustrated; and on a unit basis, the number of homes accepting offers dropped by about 20% year over year, a big decline. Closed sales were actually up about 7%, but October closings reflect accepted offer activity in August/ September before the shutdown crisis began. It is too early to tell if there is more going on in the market besides the temporary reaction to default fears.
This chart on Months Supply of Inventory shows a similarly unusual trend for October: MSI going up from September instead of down. Though it’s well up from recent months, it’s still low by market standards.
Months Supply of Inventory
Average Days on Market
Although many fewer listings went into contract (i.e. accepted offers) in October compared to last year, those homes that did accept offers did so, on average, very quickly. That, of course, is usually an indication of a hot market. So buyers didn’t snap up as many listings – either as a percentage of listings or in units – but the ones they did, were snapped up very quickly. Sometimes different statistics appear to indicate different trends on a short-term basis; such anomalies are almost always resolved over a longer term.
Case-Shiller Home Price Index
The last Case-Shiller Index reading – for the 5-county “SF Metro Area” – came out in late October for the month of August, and it’s a 3-month moving average, so the Index really reflects the market 3 to 5 months ago. This chart gives an overview of long-term trends in Bay Area values for homes in the upper third of sales by price range (i.e. more expensive homes). If we looked at what was happening month by month in the Index, we’d see a gradual plateauing of price appreciation of higher-priced homes over the past few months after the furious increases of spring. Home values in the city of San Francisco itself (as opposed to the Metro Area) are now generally above the previous peak values in 2006-2008.
Paragon Case-Shiller Report
Median Sales Price Appreciation
This chart tracks SF home median price appreciation since the market recovery began in earnest. The overall trend has been dramatically up, but median prices for the last 5 months have been relatively flat after the springtime spike. If the October slowdown in accepted offers had any effect on median prices, it won’t show up until November and December closed sales are tallied. The market has certainly shifted from the frenzy of the first half of the year, but, except for October (affected by default fears), statistical measures of supply and demand have generally continued to show a strong market by historical measures. If a significant shift is occurring in the market, it will become clearer in the statistics of upcoming months. Note that median price changes are not perfectly correlated to changes in home value, as they can be affected by issues such as seasonality and inventory.
Mortgage Interest Rates
In good news for buyers and sellers, 30-year interest rates have been dropping and are now at their lowest since June (though still above the historic low reached earlier in the year).
Home Values around the Bay Area
We just updated our Bay Area Home Value map, which provides an interesting look at comparative home prices around the bay. Remember that each median price delineated for a particular city disguises a huge variety of prices in the underlying sales. For example, in San Francisco, median house sales prices by neighborhood vary from under $500,000 to over $4,000,000. Other towns and cities will have a similarly wide range in property values underlying their overall median sales prices.
San Francisco Neighborhood Values