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.
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
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.
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:
The new S&P Case-Shiller Home Price Index for April 2014 came out today and it showed another bump in home prices for the 5-county San Francisco Metro Statistical Area. For homes in the upper tier of home values – as most of San Francisco’s are – prices are up approximately 17% in the past 12 months and up 41% since the recovery began in early 2012.
Based upon what we are seeing on the ground in the market, we expect another bump in the May Index, which will come out at the end of July.
The new February S&P Case-Shiller Index for high-price-tier homes in the 5-county San Francisco Metro Area increased almost 1% from the January reading. This puts the Index up about 20% over the past 12 months, and up about 34% since the recovery began in earnest in early 2012. Based upon what we are seeing in the market, I expect another increase in the March Index. (The Case-Shiller Index is published 2 months after the month specified.)
While the nation as a whole saw a tiny decrease in the S&P Case-Shiller Home Price index in the January report released today, the San Francisco Metro Area Index (for 5 northern counties) bumped up again. The C-S Index for higher priced houses has now completely re-attained the previous market peak set in 2006, as measured by January data points. The city of San Francisco itself has exceeded the rise in the 5-county area and has generally surpassed previous peak values – many SF neighborhoods by substantial margins.
Based upon what we are seeing on the ground, we expect to see further increases once the late winter/early spring selling season is reflected in the Index.
This first chart shows market cycles over the past 30 plus years. The second chart shows appreciation since our current market recovery began.
This chart tracks the most recent market recovery which began in earnest in early 2012. In both 2012 and 2013, the spring seasons saw substantial jumps in home values. We recently thought the likelihood of yet another significant jump in 2014 to be relatively low, but the market we’re seeing on the ground – a very high demand/very low supply dynamic – is leading us to suspect otherwise.
Case-Shiller measures a 5-county metro area comprised of San Francisco, San Mateo, Marin, Alameda and Contra Costa counties. The numbers used relate to a January 2000 value of 100; thus 184 signifies 84% home price appreciation over the past 14 years. The Index is published 2 months after the latest monthly reading, i.e. the January Index has just been published today, March 25th.
The full report can be found online here.
Earlier this week, San Francisco was named the third least affordable major metropolitan area, behind only Vancouver and Hong Kong, according the globe Annual Demographia Housing Affordability Survey of 360 housing markets worldwide. Our market snapshot of Russian, Nob & Telegraph Hills and North Beach support that with the median sales price for a condo in Russian Hill at $1,300,000 in 2013 and average sales price at $1,612,000. Take a look:
Here’s a look at the average sales price, dollar per square foot and median house sales price beginning in 1995. Last year we saw records highs in all three categories, take a look:
Penthouses, Mansions, Short Sales & Fixer-Uppers
What Did San Francisco Homebuyers Buy in 2013?
Views, prices, architecture, neighborhoods, property types and sizes, parking, probate sales and appreciation rates: We data-mined all of San Francisco’s 2013 sales reported to MLS through the end of November and charted the results below.
Sales as described in and reported to San Francisco MLS by 11/25/13. 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 is subject to revision. These charts do not include sales unreported to MLS, such as the sale of many so-called “pocket listings” and many of the new-development condo sales that occur.
The market usually does slow down at least a little in mid-summer – a question has come up: is this possible slowdown caused by listing agents continually pushing the envelope on pricing for new listings or pricing to the last, highest, frenzied sale, a move that buyers are now finally starting to resist? It may be, that without buyer demand really slackening for homes deemed “reasonably” priced, we have come to a point, at least for the time being, that buyers are no longer willing to pay new tippet-top peak prices.
Have prices reached a plateau? Monthly median price stats are subject to fluctuation without great meaningfulness (which is why I prefer quarterly or longer periods), but after the big jump early in the year, the median sales price has been within a 4-5% spread (not a huge spread for monthly home prices) for 5 months, Including a drop from April-May. The idea of a plateau contradicts the recent Case-Shiller Index report, but the Index is about 3-5 months behind current realities, San Francisco is only a tiny part of the Index and the city has outperformed C-S since the turnaround began – having appreciated so much faster than other places, we may be due a flattening of appreciation before other areas. And that also may be true for different SF neighborhoods – since they have rebounded at different speeds, some may be plateauing and others are still appreciating.
At this point, this is speculation and it won’t be clear for a while – these things only become clear in retrospect – because spring median prices sometimes spike and summer prices drop a little as some of the higher end market checks out for the holidays. And median sales prices are not perfect correlations of changes in market value, being affected by a number of other factors, including seasonality. Anecdotally, we are hearing stories of the market not responding to homes priced at the top (even if “justified” by another recent sale), and also stories in which the winning bidder offered a huge amount, sometimes hundreds of thousands of dollars, more than what the second highest buyer was willing to pay – i.e. the winning buyer ultimately paid much more than necessary to win the deal.
The number of expired/withdrawn listings is also increasing, though not to some crazy level yet.
So it’s worth considering, that we “may” have reached a plateau or bumped into a ceiling, transitioning into a somewhat different market. If we are in a transition, the market will be schizophrenic for a while: some buyers acting one way and another growing group of buyers acting another.
Summarizing the charts above and below:
- The San Francisco Median Home Sales Price has leveled off, dropping somewhat from an April-May peak. (Chart above)
- Buyer demand is still extremely high as measured by Percentage of Listings Accepting Offers.
- Inventory is still extremely low as measured by Months Supply of Inventory and Units for Sale.
- The number of Expired & Withdrawn listings climbed in July and was about 19% higher than July of 2012 (though less than half the number of July 2011). The main reason why listings expire or are withdrawn from the market is that buyers have concluded they are priced too high.
- The July snapshot makes it clear that the market is still very strong by any reasonable measure, even if it might be on the cusp of a transition to a somewhat less fevered state.
Demand, as measured by percentage of listings accepting offers, is still very high:
Months Supply of Inventory is still very low:
The number of homes for sale is still very low:
The number of expired and withdrawn listings has been increasing:
Looking at July’s sales, mostly ratified in June, the market is still very hot:
San Francisco Luxury Home Sales Soar
2nd Quarter 2013 Update
In San Francisco, no market segment has recovered as dramatically as that for high-end homes. There are a number of reasons for this: the general economic recovery, the huge local increase in high-tech wealth, an increase in the number of highly affluent foreign buyers, and the fact that, as a group, the affluent have profited most from the large rebound in stock market values in recent years. And then the general appreciation the city has experienced of 20% – 30% since 2011 has simply moved a lot of sales into a higher sales price category. Whatever the reason, there is an enormous amount of money sloshing around the Bay Area that is now being invested in homes — many of which are being purchased all-cash. At Paragon, we have seen an increase of over 100%, year over year, in the number of luxury home sales we have brokered so far in 2013.
In the first chart below, we are defining luxury homes as condos, co-ops and TICs selling for $1,500,000 and above (the vast majority of these are condo sales), and houses selling for $2,000,000 and above. These are relatively arbitrary thresholds since a $2,000,000 house in Presidio Heights can be a small-ish fixer-upper, while a home of that price in another neighborhood might be a pristine mansion. In the charts breaking down sales by neighborhood, we’ve added the price segment for houses of $1,500,000 to $2,000,000 since what is happening there is quite interesting as well.
Luxury Home Sales by Quarter
High-End Home Sales by District & Neighborhood
The first chart is for condo, co-op and TIC sales, and the three following are for house sales.
The neighborhoods listed are representative of one of the 10 Realtor Districts for San Francisco, so consider them as indications of the general area where the sales occurred. This analysis tracks sales reported to San Francisco MLS. A fair number of high-end homes sell “off-market” and are not reported, however we don’t believe these alter the general picture painted in the charts above.
The pundits are making dramatic, even doom-laden pronouncements about what is going to happen with interest rates (and the housing market), though they’ve been wrong so many times over the past few years, these “expert” predictions might be taken with salt-shaker’s worth of salt, perhaps with lemon and a nice shot of tequila.
Obviously, interest rates are an important component of the real estate market. But this chart gives a little context to what has occurred recently: the blue column is the average 30-year interest rate for the first 5 months of 2013, when everyone was dancing with glee at how low the rates were; the black line at the end represents the interest rate on Friday, June 6th, though it is true that it briefly hit 2 tenths of a percentage point higher earlier in the week (so if you like, add the tiniest smidgeon more to the black line).
I don’t know where interest rates will go, though they will probably rise over time—and perhaps there will be an upcoming interest-rate shock. But terror seems a bit premature.
The Economist has a good article (about the US real estate market not being in a bubble) and created a terrific interactive graph that allows you, by metro area (you have to click on San Francisco to add it to the graph), to compare home price changes in real terms over time, versus average incomes, and versus rents, from 1987 to 2013. San Francisco is at the top of the chart in percentage increase and increases in prices in real terms, but still rates right at the long-term average in home prices versus income and versus rents. The Economist was one of the very first to identify the housing bubble inflating – running strongly against the then current opinion of other pundits – so I think their opinion on whether another bubble is about to burst in the U.S. is worth hearing. (FYI: The do believe there are serious housing bubbles in certain other countries.)
”The verdict: in most markets houses are near or above their long-run values, but none looks bubbly. Price rises in Phoenix, Tampa and Miami have restored values only to their long-run averages. In Las Vegas they are still below that long-run average. Many things could trip up the housing recovery, from stalling job growth to higher mortgage rates; at the moment, a bursting bubble is not one of them.”
You can play around with the interactive chart, and you should read the article below the chart widget:
Here are 3 of their charts with San Francisco added:
Home Price Appreciation in Real Terms (Adjusting for Inflation):
Home Prices Against Average Income:
Home Prices versus Rents:
“According to an analysis by this newspaper of home values by ZIP code, with higher priced homes, such as the core of Silicon Valley and parts of San Francisco, have recovered much of the home equity lost in the crash. The data is for all types of homes: single-family, condos and townhouses. But neighborhoods with low-cost homes, especially those in parts of Alameda and Contra Costa counties, are still far below peak values, hurt by the waves of foreclosures that struck those areas.”
The full article with map is here: http://www.mercurynews.com/business/ci_20402461/bay-area-sees-patchwork-recovery-from-housing-crash
“Looking at 245 Bay Area ZIP codes, Zillow projects that 244 will see home values ratchet up by significant margins in 2013, with 27 ZIPs seeing double-digit appreciation…Popular San Francisco neighborhoods such as Noe Valley, the Castro, Twin Peaks, the Mission and Bernal Heights are poised for double-digit appreciation, along with Menlo Park, Larkspur, Palo Alto, Alameda and North Berkeley, Zillow predicts.”
The full article is here: http://www.sfgate.com/realestate/article/Bay-Area-home-prices-projected-to-surge-4288392.php
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
“San Francisco was rated first for investment, development and home building in the 2013 “Emerging Trends in Real Estate” report by the Urban Land Institute and PwC. The report says: “In 2013, San Francisco steals the triple crown from Washington, D.C., receiving top billing in the Emerging Trends investment, development, and housing categories. ‘San Francisco is driven by growth and a strong jobs outlook, led by technology and a structural change away from suburban and toward downtown.’”
Read the complete article at SFGate.com: http://www.sfgate.com/realestate/article/Which-cities-are-the-best-bets-for-real-estate-3957132.php