Market News | Real Data SF - Part 6Real Data SF

December 2, 2014May 15, 2015

Thirty Years of San Francisco Real Estate Cycles

Updated Report, December 2014

Below is a look at the past 30+ years of San Francisco Bay Area real estate boom and bust cycles. Financial-market cycles have been around for hundreds of years, all the way back to the Dutch tulip mania of the 1600’s. While future cycles will vary in their details, the causes, effects and trend lines are often quite similar. Looking at cycles gives us more context to how the market works over time and where it may be going — much more than dwelling in the immediacy of the present with excitable pronouncements of “The market’s crashing and won’t recover in our lifetimes!” or “The market’s crazy hot and the only place it can go is up!”
Continue reading “Thirty Years of San Francisco Real Estate Cycles”

November 26, 2014

New Case-Shiller Index Report

The Case-Shiller Index for September was released today. Note that it will mostly reflect sales negotiated in August or before, during the slower summer sales season. (The next Index, published in late December, will begin to reflect transactions negotiated in September and the start of the autumn sales season.) These 2 charts pertain to the upper third of sales for 5 Bay Area counties – upper third by price range. The majority of home sales in San Francisco, Marin and San Mateo are in this upper price tier.

As noted in recent Paragon reports, after the feverish market and home price appreciation of spring 2014, home values in the higher-end neighborhoods typically flattened or ticked down a bit, while more affordable homes generally continued to tick up in price.

Short-term fluctuations are not particularly meaningful until confirmed over the longer term, since markets fluctuate for a variety of reasons including seasonality.

November 13, 2014

San Francisco Autumn Real Estate Market Dynamics

SF Luxury Home Sales Hit New Peak

Neighborhood Snapshots: Noe & Eureka Valleys, South Beach
& Yerba Buena, Richmond District, Bernal Heights & Sunset/Parkside

November 2014 Update

The San Francisco market definitely cooled after the overheated feeding frenzy of the first half of the year. The competition between buyers for new listings declined to more rational levels: Homes that might have received 5 to 10 offers earlier in the year received 1 or 2 or 3. Values in many of the city’s neighborhoods plateaued or even ticked down a bit after spring’s big spike – the exception being districts with the most affordable house prices (under $1.2 million) where prices generally continued to tick up. The number of expired and withdrawn listings jumped 18% August through October when compared to last year, to over 460 listings, as buyers decided many sellers were pushing the envelope on prices too far.

On the other hand, as seen in the charts below, the autumn market has been very strong by any reasonable measure, just not one of utterly crazed competition. The number of house and condo sales was a little higher in October 2014 than October 2013, and that doesn’t include a very large number of high-end, new-development condos that went into contract. Most of the city’s listings have continued to sell quickly for well over the asking price and luxury home sales hit their highest number ever.

The market for multi-unit buildings did decline dramatically, but that was due to Prop G fears. Since the proposition failed on November 4, that effect should quickly dwindle. Meanwhile, buyers have a large inventory of 2-4 unit buildings to choose from.

General Market Dynamics

Median Sales Price by Month: Median prices are affected by other factors besides just changes in home values, such as seasonality, inventory available to purchase and significant changes in the luxury market. It often jumps up and down by month and season: It is the longer-term trend which is most meaningful. In this chart above, the spring spike, summer decline and early autumn increase are clear. Among other factors, luxury home sales usually jump in spring and autumn and drop in summer and mid-winter, and this rise and fall affects the overall median price. For the last 3 years, the general trend line has been dramatically up.

Homes Selling Over & Under List Price: As seen in the 2 charts below, an astounding percentage of San Francisco home listings continue to sell over, and sometimes far over asking price. However, an increasing percentage of listings aren’t selling at all: A hot market doesn’t mean buyers will pay any price sellers dream up. This first chart looks at SF houses, condos, co-ops, TICs and 2-4 unit buildings, breaking down sales by those that sell with and without price reductions, and the difference that makes in sales price and average days on market. Pricing correctly right from the start reaps significant rewards for sellers.

This chart breaks down SF house and condo listings by the percentage of list price achieved upon sale. Even if the autumn market isn’t as white-hot as last spring’s, these are incredible statistics. It should be noted that some of this phenomenon is certainly due to strategic underpricing of homes by some listing agents, which became increasingly popular in 2014.

Months Supply of Inventory (MSI): At just under 2 months of inventory, San Francisco’s MSI is up from spring 2014, but still indicates a very strong seller’s market.

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San Francisco Luxury Home Market

Luxury Home Sales Soar Again: October saw a big autumn surge in luxury home sales: It was by far the biggest month ever for SF house sales of $2m+, with 61 sales. Luxury condo sales were also quite high at 55 sales, a figure which doesn’t include market response to the new “ultra-luxury” Lumina project in South Beach, where 80 to 100 very expensive condos went into contract amid almost frenzied bidding – these units won’t close escrow until construction is completed in 2015 or early 2016.

The average days-on-market (DOM) for luxury houses sold in October was 21 days, and for luxury condos, it was 28 days: These are very low DOM figures, indicating quick market response to the listings purchased.

Luxury House Values: House sales of $2,500,000 and above, charted here by average dollar per square foot, cluster in a handful of areas in the city. The Pacific Heights-Marina district has the most sales and the highest median sales price for such sales: Historically, this district has been the city’s nexus for big, luxury houses. However, the greater Noe, Eureka & Cole Valleys district now sees a substantial (and growing) number of sales in this segment, though at a significantly lower price point. This area is becoming popular with the young, high-tech, ultra-wealthy (such as Mark Zuckerberg) and record prices are being achieved. Russian & Telegraph Hills have very few house sales, but very high values, as seen below. And the greater St. Francis Wood-Forest Hill area is by far the best value for big homes (often on big lots) by how much house you get for your money.

Average house size varies from approximately 2700 square feet in Russian & Telegraph Hills to 3260 in Noe, Eureka & Cole Valleys to 4200 in Pacific Heights-Marina. All things being equal (which they rarely are), a smaller home will typically sell at a higher dollar-per-square-foot than a larger one.

Luxury Condo & Co-op Values: The Pacific Heights-Marina district currently has the most luxury condo and co-op sales – but not for long: With all the new, high-rise condo construction in the greater South Beach-Yerba Buena district – already featuring the highest average dollar per square foot values in the city – this new residential area will soon dominate sales volume too. The prestigious condo and co-op neighborhoods of Russian, Nob and Telegraph Hill also feature some of the most expensive units in San Francisco. With new, luxury condo construction surging across the city, such sales – at very high dollar per square foot prices – are growing in neighborhoods such as the Mission, Hayes Valley, Duboce Triangle, Mission Dolores and Potrero Hill – and there’s a lot more coming.

Average unit size for luxury condos ranges from about 1650 square feet in South Beach/Yerba Buena to 1900 – 2100 square feet in the older, northern neighborhoods such as Pacific Heights. Older buildings usually feature larger units.

Perhaps as many as 30-40% of luxury units in the city are being purchased as pied e terres and second homes by the very affluent, or even as investments (often by wealthy foreign buyers).

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Bay Area Real Estate Prices

These two charts come from our recent report on Bay Area Demographics, covering issues such as ancestry, income, housing and education.

Square Footage for $1,000,000: At average county values, you’ll get double the square footage in Sonoma and Contra Costa as you will in San Mateo and San Francisco, and, of course, in other parts of the country, that can double or triple again.

Average Asking Rents: In terms of rental-rate appreciation, the Bay Area has 3 of the 4 hottest rental markets in the country in Oakland, San Jose and San Francisco. High rents, of course, are one of the big factors behind high home prices.

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San Francisco Neighborhood Snapshots

A look at long-term home-value trends in selected city districts. Please call or email if you’d like information on another neighborhood. Median and average statistics are generalities which summarize a huge range of underlying, individual sales.

October 29, 2014

August Case-Shiller Index Report

The August Case-Shiller Index report released today showed a small home price decline for the 5 counties of the SF Metro Area. Autumn’s numbers will give us a clearer indication as to whether this is the beginning of a flattening or declining price trend or simply the not untypical indication of a summer adjustment from the spring frenzy. PDFs are attached.

October 25, 2014

Mortgage Interest Rates Just Hit a 16-month Low

October 7, 2014

3rd Quarter 2014 Market Report

San Francisco House & Condo Values

Which Neighborhoods Dominate Home Sales?

Who Is Buying the City’s Luxury Condos and Why?

September saw the largest surge of new listings coming on market in the past 2 years, which led to a big jump in deal-making, but data on transactions negotiated in September won’t be available until most close escrow in October and early November. In the meantime, we’ll look at the last 2 quarters.

Median Sales Prices
& Average Dollar per Square Foot

The following 2 charts look at current and longer-term trends in home values. As is common, median house sales prices dropped a bit in the 3rd quarter – this is due mostly to seasonality issues – though condos have held steady for 3 quarters now at $950,000. Dollar per square foot values have continued to increase to new peaks: This metric is particularly being impacted by new-development condo sales, which are breaking dollar per square foot records virtually everyplace they’re being built.
If you wish to drill down on values in very specific city neighborhoods, we recently updated our interactive map, which can be found here: SF Home Price Map

Where Home Sales Occur at What Prices

These 2 charts illustrate where the greatest quantity of house and condo sales occur in San Francisco. House sales are dominated by the districts running along the southwest and south borders of the city, from Sunset-Parkside down to Ingleside and across to Excelsior, Portola and Bayview. These areas are also among the most affordable in the city. With 25% of sales, the South Beach-SoMa-Mission Bay district has the biggest concentration of condo sales: Virtually the only place where high-rise, high-density projects can be built in the city, the latest to begin selling is the ultra-luxury, 656-unit Lumina development. Realtor district 5, the greater Noe-Eureka-Cole Valleys area, sees a large number of both house and condo sales: This area has appreciated ferociously since the early 1990’s.

Note that the median sales prices delineated on these charts combine neighborhoods of differing values and are generalities for the larger areas described.

Besides the neighborhoods in the chart above, the Lake Street, Sea Cliff and Jordan Park area had 35 house sales in the past year and a median sales price of $3,000,000 over the past six months, and Potrero Hill had 34 house sales and a median price of $1,460,000.

Who Is Buying San Francisco’s Luxury Condos & Why?

A report just published by 48HillsOnline analyzed the SF Assessor’s Office owner mailing records for 23 condo buildings comprising 5212 units, most built in the last 10 years and/or qualifying for the description “luxury real estate.” It found that 39% of owner mailing addresses were not those of the property, with percentages over 50% for ultra-prestige buildings such as the St. Regis, Four Seasons and Millennium – some of the most expensive real estate west of Manhattan. The article’s basic thesis is that building condos for the rich to use as second or third homes does virtually nothing to alleviate the city’s shortage of housing. Without agreeing with their conclusion, the analysis does confirm an interesting insight, i.e. the city is increasingly becoming a destination for wealth, as well as a location for the creation of new wealth.

As to the article’s anti-development case: First of all, 61% of owners appear to be owner-occupiers – working professionals, empty nesters, famous ballplayers and so on – and are clearly helping to address local home-buyer demand. Of the 39% with different mailing addresses, there may be a number of explanations: 1) units are indeed being used as second homes or pied e terres by the ultra-affluent who like to visit the city (and spend money in the local economy), 2) the units are being used as investments by local or, often, foreign buyers: to buy and hold, as long-term rental properties (which help alleviate the housing shortage), or as short-term Airbnb type rentals (which don’t), and 3) units are being occupied by dependents, such as children attending college. It’s also possible some mailing addresses are for services handling financial matters for owners.

Additionally, it’s true that developers of these condo projects, under city law, must build a certain number of affordable housing units or contribute funds to do so. Last but not least, the sale and ownership of these high-end condos contribute huge sums to the county’s transfer tax and property tax revenues, which help support city services.

Home Listings Selling over Asking Price

Average Days on Market

This next chart illustrates three points: 1) the remarkable heat of the city’s real estate market as buyers bid up home prices, 2) how seasonality impacts demand – with spring and autumn being the big, highest-demand, selling seasons, and 3) because of supply issues, the SF house market is somewhat hotter than the condo market (though it too, by any standard, is very hot).

Remember that because of the time lag between listings coming on market and offers negotiated, and the actual close of escrow – upon which these statistics are based – September’s market is not reflected on these charts.

Days on market statistics still indicate a high-demand market and, again, that the house market is a bit hotter than those for condos and TICs. New condo development is helping to meet buyer demand, while new house construction barely exists in San Francisco. TIC sales, whose numbers have been dwindling in recent years, are impacted by a number of legal, political and financing issues.

San Francisco Employment

We recently illustrated our report on the main factors behind our market, charting employment, seen below, city population, city rents, interest rates and the S&P 500. Taken together, one clearly perceives the inter-connectedness between them and with SF home price trends as well. The full report, with all the new charts, is here: 10 Factors behind the Market

Neighborhood Snapshots

If you’d like information on home-value trends for other property types or other neighborhoods than shown below, please let us know. We cover all of them.

October 1, 2014

Case-Shiller sees small drop in Bay Area home prices in July – 3 charts included

The S&P Case-Shiller Home Price Index for July 2014 was released today, and indicated a small – less than 1% – dip in high-price-tier houses. (The Case-Shiller aggregate Index for all Bay Area home price tiers dropped even less, about 4 tenths of a percent.)

For the past 3 years, home prices have surged in the spring and then plateaued during the summer. It is too early to speculate whether home prices are trending down a bit after the spring market frenzy, which is certainly possible. For any definitive sense of home price trends, we will have to wait until the autumn-selling season numbers are in. Autumn this year began with a big surge in the number of new listings in September.

Remember that the C-S Index covers not just San Francisco, but 4 other Bay Area counties and is a 3-month rolling average. San Francisco makes up a very small part of all the house sales being surveyed by the Index and C-S home prices reflect offers negotiated in previous months – thus the June 2014 peak reflects the heat of the market in the heart of the spring 2014 selling season.

The last 13 months, July to July:

The small dip in July 2014 from the spring peak can be seen. Small fluctuations up and down are not particularly meaningful until substantiated by longer term data.

Since the recovery began in earnest in early 2012.

One can see the two previous summer price plateaus (and, now perhaps the beginning of a third) after spring surges:

Longer-term overview of real estate cycles:

August 27, 2014

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

The Case-Shiller Index for the San Francisco Metro Area covers the house markets of 5 Bay Area counties, divided into 3 price tiers, each constituting one third of unit sales. Most of the San Francisco’s and Marin’s house sales are in the “high price tier”, so that is where we focus most of our attention.” The Index is published 2 months after the month in question and reflects a 3-month rolling average, so it will always reflect the market of some months ago. June’s Index was released on the last Tuesday of August.

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

The first two charts illustrate the price recovery of the Bay Area high-price-tier home market over the past year and since 2012 began, when the market recovery really started in earnest. In both 2012 and 2013, home prices surged in the spring and then plateaued in the summer-autumn. The surge in prices that occurred in spring of 2013 was particularly dramatic, reflecting a frenzied market of huge buyer demand, historically low interest rates, increasing consumer confidence and extremely low inventory. In San Francisco itself, it was further exacerbated by an expanding population and the high-tech-fueled explosion of new wealth. The market then calmed down somewhat in the second half of 2013, but then heated up yet again in early 2014. In fact, the spring 2014 market was, if anything, even more ferocious than last year’s. Typically, the market cools off for the summer months and that is what we are starting to see in the Case-Shiller numbers (which, again, are some months behind the current market). The next big indication of market trends will come after the autumn selling season begins in mid-September.

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

Case-Shiller Index numbers all reflect home prices as compared to the home price of January 2000, which has been designated with a value of 100. Thus, a reading of 198 signifies home prices 98% above those of January 2000.

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

Longer-Term Trends & Cycles

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

Different Bubbles, Crashes & Recoveries

This next chart compares the 3 different price tiers since 2000. The low-price-tier’s bubble was much more inflated, fantastically inflated, by the subprime lending fiasco – an absurd 170% appreciation over 6 years – which led to a much greater crash (foreclosure crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries, but because the bubbles of the low and middle tiers were greater, their recoveries leave them well below their artificially inflated peak values of 2006. It may be a long time before the low-price-tier of houses regains its previous peak values. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, has now exceeded its previous peak values of 2007. Most neighborhoods in the city of San Francisco itself have surpassed previous peak values by substantial margins.

It’s interesting to note that despite the different scales of their bubbles, crashes and recoveries, all three price tiers now have similar overall appreciation rates when compared to year 2000. As of May 2014, as seen below, appreciation for all three tiers since 2000 ranged from 93% to 97%. In June (not shown below), this range narrowed further to 96% to 98%. This suggests an equilibrium is being achieved across the general real estate market.

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

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

The two “2014″ readings for each tier in the chart below, refer to January 2014 and May 2014.

San Francisco County

And then looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area (and the country): many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices. This chart shows both house and condo values, while the C-S charts used above are for house sales only. Median prices are affected by other factors besides changes in values, including seasonality, new constructions, inventory available to purchase, and significant changes in the distressed and luxury home segments. Short-term fluctuations are less meaningful than longer term trends.

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