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Mixed Signals in San Francisco Real Estate Market

Preliminary Indications of Market Direction


 

San Francisco Real Estate in Early 2017

 

Preliminary Indications of Market Direction

 

April 2017 Report

 


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In recent months, there have been multiple reports in local media about Big Drops in San Francisco Home Prices! But, umm, we are not seeing it, neither on the ground in the hurly burly of buyers and sellers making deals, nor in the year-over-year quarterly statistics of supply and demand. News articles often make a big deal regarding the median sales price in a single month, but monthly data is often gravely deficient as an indicator, fluctuating up and down without much meaningfulness due to a number of factors. January and February are particularly bad months to draw conclusions from: The lowest sales volumes of the year, reflecting deals negotiated during the December-January market doldrums, with weather issues sometimes thrown in besides (for instance, in early 2017). Last but not least, the media often mixes property types to come up with a single median sales price, and that is generally not a good idea either.

This chart above illustrates San Francisco quarterly median sales price movements since 2012, which, as one can see, is also prone to significant fluctuation. In Q1 2017, the median house price basically plateaued year over year, while the median condo price actually increased from Q1 2016. (Historically, it is not unusual for Q1 median prices to drop from Q4 due to seasonal reasons, mainly the characteristic big slowdown of luxury home sales in mid-winter.) Q1 is the quarter of the year with the least number of closed sales, so too much should not be made of its data, but we have summarized annual Q1 dynamics for the past 4 years in the 2 charts below. For context, remember that 2014 and 2015 were particularly feverish markets. A much better assessment of the direction of the 2017 market will be possible after Q2 data is in: March through June is usually the most active selling season of the year.

Year-over-Year Comparisons of Q1 Statistics
Chart 1: San Francisco House Market OverviewChart 2: San Francisco Condo Market Overview————————————————————

Annual Median House Sales Price Trends:
5 Selected San Francisco Neighborhoods, since 2004


Generally speaking, in higher priced areas, median house prices have been plateauing or dropping a little, while the more affordable neighborhoods have continued to appreciate: This is a relatively common dynamic around the Bay Area.

The only way to assess value or appreciation for a particular home is by performing a comparative market analysis tailored to its specific location, condition and circumstances. Of all the neighborhoods graphed above, the Marina has by far the fewest house sales and the widest range of individual home sales prices, so it is most susceptible to median price fluctuations caused by other factors besides changes in value – for example, a substantial change in the listings available to purchase in a given year. We do not believe that the same Marina house selling in 2015 would have sold for 15% less in 2016: something less, perhaps; 15% less, very unlikely. This is a good illustration of the dangers of making too much of median sales price changes.

If you would like median home price trends for another San Francisco neighborhood, please let us know.

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Average Sales Price to Original List Price Percentage

By Month: House, Condo, Co-op, TIC & 2-4 Unit Building Sales
As seen in this chart, overbidding typically heats up as the market moves into spring. So far, this year has been no exception, though the overbidding percentages are somewhat lower than in recent years.


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Annual Market Trends
For clarity and meaningfulness, we much prefer annual trend analyses, with their much bigger data sets, and have recently completed a comprehensive review of virtually every statistic we could think of on that basis. Doing so allows us to stand back to see the broader view of what is happening in the market, instead of getting obsessed by what happens to be in front of our shoe. Looking at annual trends, virtually all the market statistics illustrate the same general conclusion: The market became progressively stronger coming out of the 2009-2011 housing recession; the frenzy peaked in 2015; and the market cooled a bit in 2016, condos more so than houses. This is a generalization of the macro-trend: Different market segments have been going in somewhat different directions and speeds in the city and around the Bay Area in the past year or so.

Below are a few of the many analyses. The full review is here: Long-Term Annual Trends in San Francisco Real Estate

First 2 charts: The hotter the market, the greater the percentage of listings that sell quickly, and the more ferocious the competitive bidding on those listings.


Even with some cooling, the overbidding on appealing new listings has remained quite dramatic: Our current percentages over asking would stun anyone from almost any other market in the country. (However, underpricing has also become a more common strategy here than in other markets.)


Annual Trends Chart 3: As a market begins to cool, the number of listings that expire or are withdrawn without selling increases. This is typically due to increasing supply, softening demand, sellers looking for more money than buyers are willing to pay, or all three.


Annual Trends Charts 4 & 5: As new condos and new rental apartments came on the market in greater numbers in the past year, it cooled those two market segments, much more so than the house segment, of which hardly any are built new in the city anymore. (The more affordable house market in the city has remained remarkably hot.) The rental market was affected most as more new rental units came on market than at any time since WWII: Though SF still has the highest rents in the country, they have dropped from their peak in 2015.



Chart 6: To a large degree due to big changes in tenant eviction and condo conversion laws, the TIC market has gone through a large decline in sales volume. It is also true that after decades of turning multi-unit buildings into condos and TICs, the supply of such properties available to do so has declined. Generally speaking, TIC median sales prices plateaued from 2015 to 2016 at about 14% below the median condo price.


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San Francisco Luxury Home Market
Three sample charts from our big report on the high-priced home segment. Generally speaking, the luxury market has cooled more than the more affordable segments, and the luxury condo market has cooled more than the luxury house market. This is mostly due to the recent surge of new-construction luxury condos onto the market in the city.

The first two charts below are snapshots of either the house or condo segment of the luxury market in two of our major districts.



This next chart illustrates one of the bigger changes in SF high-end home markets. Many more listings, resale luxury condos in particular, are expiring or being withdrawn from the market without selling.



Our full report is here: Luxury Home Market of San Francisco

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Interest Rates
Constantly shifting economic and political factors continue to affect rates: Mortgage interest rates are significantly up since the election, fluctuating up and down since the year began, but still far below historical norms. This is a factor everyone is watching carefully because of its potential impact on affordability, already a big issue in the Bay Area.

Apartment Building (Multi-Unit Residential) Sales
We have also released our quarterly report on the multi-unit residential property markets of San Francisco, Marin and Alameda Counties: Bay Area Apartment Building Market. Below is one of its many analyses.


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All our reports can be found on our redesigned website: Paragon Market Reports

Using, Understanding and Evaluating Real Estate Statistics

If you will forgive a little celebrating on our part: In the last two quarters, Paragon sold more San Francisco residential and multi-unit residential real estate than any other brokerage (as reported to MLS, per Broker Metrics), even though we have far fewer agents than many of our competitors.

If you have any questions or comments regarding this report, or if assistance can be provided in any other way, please call or email.


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It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis, which we are happy to provide upon request.

These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.


© 2017 Paragon Real Estate Group

No one knows San Francisco real estate better than Paragon.

Paragon Real Estate Group
www.paragon-re.com/

Pota Perimenis
Lic# 01117624
1400 Van Ness Avenue
San Francisco, CA 94109
Direct 415-738-7075
Cell 415-407-2595
pperimenis@paragon-re.com
www.sfcityhomes.com

 

 

PLACE. A new digitalzine

Issue 2 of Place is here!

Click here for issue 2 of Place!

“Spring has officially arrived around the Bay Area – the beauty of this past season’s El Nino’ rain has put a blanket of green on the hills and all the trees and flowers are in full bloom.

We’ve packed a lot in to this second issue of PLACE to celebrate this fresh season that is upon us. Foodies can feast their eyes upon MKT, Rodney Worth and Farmshop. Inspire your inner decorator (or hire one) with Timothy Quillen and Folger & Burt. We’ve been busy selling real estate and we’ve packed in listings from Phil Lesh of the Grateful Dead and a history lesson on the Hearst family’s build from the early 1900’s. We also focus on Passive Homes and Net Zero building. It’s a trend that will definitely continue to grow and take hold in this chang­ing environmental climate. Don’t miss out on everything the Bay Area has to offer in our events pages.

Luxury Homes Cool. Affordable still hot. November 2015 market report


Paragon Real Estate Group

Paragon Real Estate Group
 

San Francisco Real Estate

Luxury Home Segment Cools Down

“Affordable” Homes Market Remains Competitive

 

November 2015 Report
including 11 Custom Charts

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San Francisco led the Bay Area and the nation when its real estate recovery began in early 2012. Within the city itself, the more affluent neighborhoods led the rebound from the 2008 – 2011 recession and saw the highest rates of home price appreciation. That dynamic began to shift in 2014, when the more affordable neighborhoods began to take the lead in demand and in appreciation. All price segments in San Francisco have cooled off from the overheated frenzy of the spring 2015 selling season – this cooling is a common seasonal phenomenon – but while lower and mid-priced homes in the city have continued to remain solidly in “seller’s market” territory, in the luxury home segment, the dynamic between buyers and sellers has fundamentally shifted, at least for the time being.

A number of reasons may explain this: Firstly, the affluent are much more invested in the stock market than other groups, and the volatility of late August, early September may have encouraged more wealthy homeowners to sell (before things might possibly get worse), and more wealthy homebuyers to postpone buying until things clarified. As of very early November, the S&P 500 has regained its lost ground from August, so this effect may fade. Secondly, it’s certainly possible that sellers and listing agents have finally pushed the envelope on prices a little too far: San Francisco’s high prices have clearly motivated some buyers to look at options outside the city (which has helped pressurize the markets of other counties). Last but not least, more and more luxury condos are being built in San Francisco: Growing supply not only gives buyers more options and more negotiating room, but it decreases the urgency to write strong offers quickly or the motivation to compete with other buyers.

However, the luxury home market hasn’t “crashed”: there are still high-end homes selling very quickly for very high prices amid competitive bidding. But it has markedly cooled and the number of luxury home listings in San Francisco hit a new high in October, so correct pricing has becomes increasingly vital. It remains to see if this change is just a transitory market blip – such blips are not uncommon in financial or real estate markets – or the beginning of a longer term reality.

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Median Sales Price by Month


Even with the general cooling in the market since spring and the significant slowdown in higher end home sales, the overall median sales price for houses and condos bounced back up to $1,200,000 in October. Median prices are impacted by seasonal trends: typically peaking in the spring, dropping in the summer, up again in the autumn and then plunging during the winter holidays. This has more to do with inventory than with changes in fair market value. Short-term fluctuations are not particularly meaningful: It is the longer-term trend that gives a sense of what’s going on in the market.

For houses alone, the median sales price in October was $1,300,000 and for condos, it was $1,100,000.

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Supply & Demand Statistics

by Price Segment, October 2015


Months Supply of Inventory (MSI) is a classic measurement of supply and demand, calculating the time it would take to sell the existing inventory of homes for sale at the current rate of market activity. The lower the MSI, the greater the demand as compared to the supply, i.e. the hotter the market. The house market in San Francisco has been stronger than the condo market since the recovery began – though the condo market has been crazy hot as well – because the supply of houses is more limited and is dwindling as a percentage of sales because virtually no new houses are being added to inventory. However, new condos are being built in quantity. This chart above illustrates the dramatic difference in the markets for homes up to the median price ($1.3 million for houses, $1.1 million for condos) and in the next price segment higher, versus the luxury home segment, defined here as houses selling for $2,000,000+ and condos for $1,500,000+. (By this definition, luxury sales currently make up about 20% of San Francisco’s home sales.)

Because SF has been so hot for so long, we’ve adjusted the thresholds for what MSI readings define “seller’s market” and “buyer’s market” to better reflect the psychology of the current market.


Luxury Home Listings for Sale


As mentioned earlier, the number of high-end house and condo listings hit all-time highs in October, while sales numbers are well below levels hit in the previous 2 years. Even more so than the general market, the luxury segment is dramatically affected by seasonality and typically goes into deep hibernation from Thanksgiving to mid-January. Having so many active listings on the market just prior to the winter holiday doldrums is one of the reasons why we designate the luxury-home segment as currently having moved into “buyer’s market” territory.

The Luxury Home Market: Months Supply of Inventory

Year over Year over Year Comparisons


This chart above illustrates the change in the luxury home market supply and demand balance over the past three Octobers. As a further point of context to what has happened in the past year, during the feverish market of this past spring, the MSI for luxury houses hit a low of 1.6 months of inventory and the MSI for luxury condos hit a low of 1.7 months. Since 2012, spring has consistently been the hottest, most competitive, selling season of the year and most home price appreciation has occurred during that time.

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4 Neighborhood Snapshots


Much more information regarding SF neighborhood prices and trends can be found here: San Francisco Neighborhood Values

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Average Asking Rents in San Francisco


The real estate market has been challenging for homebuyers these past few years, but for anyone looking to rent a home in the city, it has been distinctly more difficult financially. Homebuyers have the benefit of historically low interest rates, multiple tax advantages and, hopefully, substantial appreciation gains over time; renters enjoy none of those advantages (though admittedly there can be long-term benefits to rent control for renters that qualify). Even with the big jump in home prices over the past 4 years, factoring in the 35% – 40% decline in interest rates and adjusting for inflation, the ongoing monthly cost of homeownership (for someone putting 20% down) is roughly the same as it was in 2007. But average monthly asking rents in the city have surged over 50% during the same period.

This has made rental property ownership an increasingly lucrative proposition, which we discuss in more detail in our last Commercial Brokerage report: Bay Area Apartment Building Market

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Median Household Incomes

In Selected San Francisco Zip Codes

By Bay Area County


Additional demographic analyses from previous reports can be found here: San Francisco & Bay Area Demographics and Bay Area Affordability

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These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate. How any median or average statistic applies to a particular home is unknown without a specific comparative market analysis. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier.

© 2015 Paragon Real Estate Group
No one knows San Francisco real estate better than Paragon.
Paragon Real Estate Group
www.paragon-re.com/

Pota Perimenis
Lic# 01117624
1400 Van Ness Avenue
San Francisco, CA 94109
Direct 415-738-7075
Cell 415-407-2595
pperimenis@paragon-re.com
www.sfcityhomes.com