Over the last 13 months, for a variety of compelling economic reasons, home-buyer demand in San Francisco has continued to grow ever stronger, while the inventory of homes available to purchase has only become tighter. This is the classic supply and demand dynamic — increased competition for a scarce commodity — that leads to increasing prices. Our inventory crunch, at least so far in 2013, is not easing. This situation is advantageous to sellers, and difficult and aggravating for buyers (and their agents): the time, effort, emotional energy and money that it takes to find and buy a home have all been increasing.
However, if buyers can summon the patience and endurance to see the process through, they might take some solace in the last 2 real estate recoveries, in the eighties and nineties. As can be seen on charts further down, it’s not unusual for repressed buyer demand to explode after a long down market, creating the same rapid appreciation situation we are experiencing now. But even with increasing competition and rising prices, those who purchased in the first few years of the past 2 turnarounds ended up doing very well with their investments. We don’t know if this recovery will continue to follow the same trend lines as past market cycles, but it has thus far.
Below are analyses that look at both short-term and long-term trends from a variety of angles.
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Is Everything Selling Over the Asking Price?
No, of course not: not all listings are selling for over list price. Some homes still go through price reductions and some don’t sell at all, but it is true that a large percentage of SF listings is now selling for over asking price and sometimes far over. This is especially the case with houses, where 1 in 4 sold in the past 2 months went 10% or more over the list price. (Note: Homes selling for within a quarter percent of the list price were considered to have sold AT asking price.) And this link shows the dramatic increase in median home prices in 2012:
Median House & Condo Prices
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New Listings vs. Accepted Offers
There are two issues behind the current low inventory crunch: firstly, there’s the simple matter of fewer listings coming on market, and secondly, that the listings that do arrive are being snatched up very quickly. This chart compares the influx of inventory and buyer demand in January of the last 4 years. Currently, on any given day, the choice of listings available to purchase is far below that of previous years — which fuels fierce competition between buyers. This link illustrates that fact and the overall decline in listings for sale:
Listings for Sale
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Ratio of Expired Listings to Sold Listings
Even in a hot market, not every listing sells: some listings viewed as overpriced end up expiring or being withdrawn. However, the ratio of expired and withdrawn listings to sales declines significantly in a strong market, which is what happened last year. Typically, the fourth quarter is marked by a very high rate of expired and withdrawn listings due to the holiday season and end of the year, but in the last quarter of 2012, buyers continued to aggressively snap up listings. And this link goes to a days-on-market chart illustrating the increasing speed with which buyers are snapping up listings:
Average Days on Market
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Perspective on 3 Recoveries
This Case-Shiller chart for the 5-county SF Metro Area begins with the recovery following the market recession/ doldrums of 1991 – 1995. The market of 1996 and 1997 had basically the same dynamic of repressed demand exploding alongside a recovering economy that we’re experiencing today. (All chart numbers reflect a percentage of the home values in January 2000.) There followed a 100% increase in values over the next 5 years, even before the inflation of the big bubble of 2004-2008. Buyers who bought in the mid-late nineties ended up doing quite well. This link shows the same dynamic in the transition from the late seventies/ early eighties recession to the mid-eighties rebound. Those buying in the early years of that recovery also did pretty well, even factoring in the following recession and market correction:
Market Recovery in the 1980′s
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Supply & Demand
The chart and the one in the following link are two classic measures of supply and demand. The lower the months supply of inventory and the higher the percentage of listings accepting offers, the stronger the demand when compared to the supply of homes available to purchase.
Percentage of Listings Accepting Offers
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Buying vs. Renting in San Francisco
This analysis (just 1 part of a full report) compares buying a 2-bedroom SF home at the current median price of $775,000 to renting a 2-BR at the current average asking rent of $3800. It illustrates how buying can make excellent financial sense after tax benefits and principal pay-down are factored in, much less building substantial home equity over time. In this analysis, the “net” house payment comes out well below the rent. However, these scenarios depend on many assumptions such as interest, appreciation, inflation and income-tax rates. It depends on the rent one is paying and having the 20% down payment and closing cost monies available. Still, there’s no doubt that with current interest rates and rents, the equation is much more favorable to buying than it has been for a very long time. Feel free to perform your own analyses using our Rent vs. Buy calculator, which can be accessed using this link. After putting in your numbers, be sure to click on Calculate and View Report:
Calculators
Up. I’m done.
But you didn’t hear it hear first.
In fact, it seems that there’s an amazingly broad consensus that San Francisco (and Bay Area) prices are heading for sustained gains this year and possibly beyond.
Continue reading “The 2013 San Francisco Housing Market Forecast”
San Francisco Rankings, Real Estate Prices & Trends, and the Biggest Home Sales of 2012
January 2013 Paragon Market Report
Here is a look at how a diverse group of major and minor organizations have recently ranked San Francisco on a wide variety of important and whimsical measures. Where disagreements existed — 3 different surveys ranked SF as the 1st, 2nd and 3rd “Greenest City” in America, and 2 surveys ranked us as second and third smartest city in the country — we naturally chose the highest grade as most accurate.
The ranking report is followed by some fascinating snapshots of the San Francisco and Bay Area real estate markets.
Median Home Sales Prices around the Bay Area
This mapped analysis calculates median prices from both distressed and non-distressed property sales around the Bay Area as reported to MLS. Median price is a very general statistic and many cities include districts of wildly varying value. For example, San Francisco contains neighborhoods whose median prices vary by over $4,000,000: The overall statistic mixes them all up together and comes up with $810,000. Maps with SF neighborhood values are included later in this report.
The 2012 Rebound
Exactly a year ago, we suggested that, based upon the changing market and economic dynamics we perceived developing in 2011, the SF real estate market was on the cusp of a major turnaround in 2012, possibly similar to what occurred in 1996 when the market blasted off after years of doldrums. And that is what happened, not only for the city, which led the way early in the year, but for the Bay Area, state and country somewhat later. Note that the SF house median price quoted here for 2012 is for 4th quarter non-distressed sales only.
San Francisco Neighborhood Values
This map charts median sales prices and average dollar per square foot for houses by city neighborhood. And this link goes to a map for SF condo values:
SF Condo Values Map
Year over Year Changes in Values
Very generally speaking, and depending on neighborhood and property type, SF home values have risen by 10% to 20% over the past year. Here is a chart assessing the surprisingly consistent change in overall SF condo value statistics and this link looks at SF house statistics.
SF House Value Statistics
SF Homes Sales by Price Range
One client once called this the “high-heel shoe” graph of San Francisco home prices. One of the big components of the 2012 market was the resurgence in luxury home sales, the chart for which can be found using this link:
SF Luxury Home Sales
Sales by Property Type
Gradually, with the addition of the big new developments in the SoMa-South Beach district (and other areas of the city), condos have become the largest single category of property type sales in the city. This trend will only accelerate with the new burst in construction plans. And this link leads to a chart showing the resurgence in unit sales. Unit sales would have been much higher in 2012 if inventory had not been so drastically low:
Unit Sales Trends
Distressed Sales: Goodbye to All That
Distressed home sales have been a market aberration caused by the collapse in loan underwriting standards and the refinancing frenzy of the bubble years. Fair market value is defined as “the price a willing, able and reasonably knowledgeable buyer would pay to a seller not under distress.” But bank and short sales radiate distress: underwater sellers, overwhelmed and unresponsive banks; often the physical condition of the homes themselves is distressed. Buyers demanded a huge discount to deal with them. In SF, this market segment was largely confined to the lower price ranges and less affluent neighborhoods. Now, with the market recovery, the city’s distressed home market is rapidly dwindling and should soon disappear altogether.
Percentage of Listings Accepting Offers
This one statistic provides the context to everything we’ve seen in the market this past year: ferocious, pent-up, buyer demand met a drastically inadequate inventory of homes for sale, leading to much more competition for listings and strong upward pressure on prices.
Median SF home prices vary on some of the charts above, depending on whether the price specified is for both distressed and non-distressed properties together, only non-distressed homes, for the last 4 months of 2012 or for the last quarter of the year, or whether price limits were placed on the analysis (limiting sales to under a certain sales price). This is natural: the statistics will change depending on the parameters of the analysis, and it’s always useful to look at the market from slightly different angles.
Statistics are generalities and should be considered approximations: How they apply to any specific property is unknown. These analyses were performed in good faith with data derived from sources deemed reliable, but they may contain errors and are subject to revision. If you have any questions, please don’t hesitate to contact us.
© Paragon Real Estate Group, January 2013
Sales Price to List Price Percentage & Days on Market
In November, the vast majority of San Francisco homes that sold, sold very quickly without any price reduction, at an average sales price 4% above the list price: That is a strong, hot market. Properties that had to go through price reductions took over 2 months longer to accept offers and sold at a significant discount to original list price. And even in a hot market, there are listings that do not sell at all, but expire or are withdrawn from the market: Many of these will ultimately be relisted at lower prices and eventually sold.
Average Sales Price
The average price is simply the total dollar volume of sales divided by the number of sales. Like median price, it is a general statistic affected by a variety of factors and often fluctuates without great significance on a monthly basis. Among other factors, a decline in distressed home sales and/or an increase in high-end home sales, both of which are occurring now in SF, can have an outsized effect on average sales price. October saw a big jump in average sales price, and then it went up again in November. If the market acts in its typical manner, it will now fall in December and January, since the more affluent home market tends to withdraw for the holidays. (We limit this analysis to sales of up to $3m because the 5% of home sales above that – going up to $12m – $20m – severely distort the overall average by hundreds of thousands of dollars.)
Median Sales Price
The median home sales price is that price at which half the sales occurred for more and half for less. It is a very general statistic and what’s important is the trend over the longer term — monthly fluctuations are normal. Still, October-November saw a large increase over the relatively static median prices seen in the previous 6 months, which followed the big jump in early 2012. Usually, median prices will fall in December and January as the higher end market checks out for the holidays. Remember that sales prices reflect accepted offer activity in the 4 to 10 weeks prior. (The small decline from October to November is probably not statistically significant – unless substantiated as a longer term trend.)
Months Supply of Inventory: Very Low
MSI is a measure of how long it would take to sell the current supply of listings at the existing rate of sales. In October and November, it was about as low as it has ever been. This would typically be interpreted as a strong “seller’s market.”
New Listings & the Inventory of Listings for Sale
After the inventory spike in September from the large influx of new listings, in October and November the number of new listings (the first chart below) and the total number of homes for sale (second chart below) are markedly declining and will almost certainly continue to do so until early 2013.
Percentage of Listings Accepting Offers (Buyer Demand)
The statistic used on this chart boils down the supply and demand dynamics into a single statistic. The percentage of listings accepting offers in October and November was probably about as high as it has ever been, far above the level of previous years. The decline seen in September was the result of a large influx of new listings hitting the market in mid-month – these were snapped up at the same fast rate, but many didn’t accept offers until October, after a reasonable marketing and showing period.
October Statistics Show No Slowdown in SF Market
November 2012 Market Update
Last month’s newsletter mentioned anecdotal word on the street that the San Francisco market might be slowing down a bit – it appeared the frenzy had diminished somewhat and that fewer listings were selling instantly with ridiculous numbers of competing offers – and the question was whether this would soon show up in the statistics. It hasn’t. Though September did see a burst of new inventory that temporarily changed the equation between buyers and inventory, now with October’s statistics it’s clear the market is still dominated by a high demand/ low supply/ upward pressure on prices dynamic. However, it should be noted that there is a difference in market heat between a listing receiving 1 or 2 offers compared to it receiving 5 to 20 offers, however that difference might not show up in the statistics as long as one good offer is accepted.
Comparing September-October sales reported to MLS with the same two months in 2011, SF dollar volume home sales were up 41%; at Paragon, our sales were up over 109%. These are not the signs of an ebbing market, nor are the statistics illustrated below.
Typically, at this time of year, the number of new listings begins to markedly decline in preparation for the slowdown that usually begins at Thanksgiving and runs through mid-January. But we saw very little of the usual summer slowdown this year, so we will see how much market activity slackens during this year’s holiday season.
Median Sales Price Jumps in October
The median home sales price is that price at which half the sales occurred for more and half for less. It is a very general statistic and big monthly fluctuations, such as seen in October, should be taken with a grain of salt until substantiated over the longer term. Still, October saw a very large increase over the relatively static median prices seen in the previous 6 months, which followed the big jump in early 2012. Remember that sales prices reflect accepted offer activity in the 4 to 10 weeks prior.
Average Sales Price Jumps
The average price is simply the total dollar volume of sales divided by the number of sales. Like median price, it is a general statistic affected by a variety of factors and often fluctuates without great significance on a monthly basis. Among other factors, a decline in distressed home sales and/or an increase in high-end home sales, both of which are occurring now in SF, can have an outsized effect on average sales price. We will see if October’s big increase is sustained in future months or is simply one of those anomalous fluctuations which occur in real estate.
Buyer Demand Remains at Peak Level
The percentage of listings accepting offers in October was probably about as high as it has ever been, close to twice the level of October 2011. The decline seen in September was the result of a large influx of new listings hitting the market in mid-month.
New Home Construction Blasting Off
After crashing in 2008, developers are building again in a big way: over 4000 housing units are currently under construction in San Francisco, with many thousands more in the planning/permit phases. The lack of new homes on the market in the past few years has greatly impacted the supply side of the supply and demand equation. However, with the significant time lag between construction beginning on the larger projects and new condos arriving on market, the effects of this building surge will be a while before being felt.
Distressed Home Market Dwindling
The city was never as hard hit as many other areas by distressed home sales (bank-owned and short sales), and now they are declining rapidly with the market recovery. The number of distressed home listings has declined by 80% since it peaked in November 2010. On this course, this segment will soon be only a negligible part of the SF market.
Listings for Sale Still Very Low
After the spike in September from the large influx of new listings – September is typically the month with the greatest number of new listings – the number of homes for sale is declining again and will almost certainly continue to do so until early 2013.
Months’ Supply of Inventory (MSI)
MSI is a measure of how long it would take to sell the current supply of listings at the existing rate of sales. In October, it was about as low as it has ever been.
Average Days on Market (DOM)
Strong buyer demand plus low inventory typically leads to lower average days on market, and this is what occurred in October.
The Longer Term View
Pulling back from monthly data to look at the longer term cycles of real estate gives greater context to what’s happening in our current recovery.
In October, we completed quarterly updates for San Francisco’s luxury home market, the SoMa-South Beach condo market, the Noe Valley-Castro-Cole Valley home market, as well as for many of the city’s other neighborhoods. If you would like to review these analyses, please reply to this email with your specific request and the information will be sent to you.
Darcy Padilla for The New York Times
ROUGHLY two decades ago, during an earlier Internet start-up boom, many entrepreneurs and fast-typing coders and engineers set up shop in a still-gritty area of this city: South of Market Street.
The young tech crowd rented — and sometimes bought — in commercial buildings in this former warehouse area, converting them into “work-live” spaces where they operated their nascent companies and slept (once in awhile).
See the the complete article at NYTimes.com: http://www.nytimes.com/2012/10/21/realestate/in-san-francisco-glass-and-steel-condos-rising-by-the-bay.html