8 Unique Day-Trips in Northern California

 


As Buyers Compete for an Inadequate Supply of Home Listings,
San Francisco Median House Sales Price Soars to $1,500,000 in May

June 2017 Report

Home price appreciation, overbidding asking prices, supply and demand
dynamics, the SF luxury home market & new housing construction

Three Views of SF Median Sales Price Appreciation

Monthly House & Condo Median Sales Prices since 2012

We are not that enthusiastic about using monthly median prices, because San Francisco does not have that many sales in any given month (400-550), divided among 4 property types in 70-odd neighborhoods with different values. Monthly data can also be affected by short-term events, such as bad weather, a spike in interest rates, a new-condo project closing many sales, or a sudden political or economic event. All those factors mean that monthly prices can fluctuate dramatically without great meaningfulness as to changes in fair market value.

However, that being said, the spring market 2017 definitely became feverish and in May, the SF median house sales price jumped to $1,500,000, its highest point ever, about $100,000 (7%) above its previous monthly peak. The SF median condo sales price also hit a new peak at $1,200,000, $20,000 (1.7%) above its previous high. Note that it is not unusual for median sales price to spike in spring and then decline thereafter as the market starts to cool for summer (i.e. spring median prices do not immediately become the new normal). Other counties around the Bay Area also hit new peak median house sales prices in either April or May: $1.49m in San Mateo, $1.35m in Marin, $1.28m in Diablo Valley/Lamorinda, and $875,000 in Alameda.

Year-over-Year 3-Month Median Sales Prices
March-May, since 2005

Comparing March through May sales year-over-year, houses and condos also hit new peaks: the SF median house price increased 4.6% from the same period in 2016, and the SF median condo price increased 4.5%.

Rolling 3-Month Median Sales Prices since 2005

In both this chart and the one above it, one sees the plateauing of condo median prices in 2015-2016. The condo market cooled much more than the house market in 2016, mostly due to an influx of new construction condos coming on market just as high-tech hiring slowed.

Comparing Us and Them

San Francisco & National Appreciation Trends since 1987 through March 2017

The numbers on the Case-Shiller chart below all relate to a home price of 100 in January 2000: 50 denotes a home price 50% below then; 230 signifies a price 130% above January 2000.

This chart compares the S&P Case-Shiller Home Price Indices for the 5-county San Francisco Metro Area high-price-tier market (which reflects the city of San Francisco best) in the blue line and the United States market in the green line. It goes through March 2017, which is the last report Case-Shiller has released as of early June, so it will not reflect the appreciation of April and May.

The appreciation trend lines are really quite similar except for 3 periods: Right after the 1989 earthquake, the rise and crash of the dotcom bubble, and the recent high-tech boom in the Bay Area. Looking beyond the difference in appreciation rates since 2012, 70% vs. 40%, the difference in dollar appreciation in median house prices over the 5 years is enormous: over $500,000 for SF vs. $70,000 for the U.S.

Note on the chart that after a divergence, it is not unusual for the trend lines to converge once again.

Market Heat by San Francisco District

Overbidding House List Prices

The house market is hotter than the condo market, and the more affordable house market (affordable by San Francisco standards) has turned into a feeding frenzy this spring. By the measure of overbidding, the Sunset, Parkside and Golden Gate Heights district remains the hottest the city, as it was when we last measured in October 2016. These are stupendous median percentages over house asking prices. In the condo, co-op and TIC market, overbidding is at lower percentages, generally running in the 5-11% range, but going as low as 0% in the South Beach/SoMa district with its big influx of new construction inventory.


4 Measures of Supply & Demand Dynamics
January 2007 – May 2017

In each of the following charts, there are distinct changes reflecting 1) the market recession after the 2007 peak, 2) the 2012-2015 recovery, 3) some cooling in the market in 2016, and 4) the market heating up again in spring 2017. Note the differences in some of the trends lines between the house and condo market. San Francisco is the only county in the Bay Area where the market is dominated by condo listings: Thousands of new condos have been built since 2000 with many more in planning.

New Listings: The decline in the frequency of owners putting their homes on the market has played a critical role in pressurizing the markets in SF and, indeed, around the country.

Active Listings: The number of active listings on the market at any given time is determined by the number of sellers putting their homes on the market and the intensity of buyer demand jumping on those new listings (and taking them off the market).

Months Supply of Inventory (MSI) measures the interplay of supply and demand: The lower the MSI, the stronger the buyer demand as compared to the supply of listings available to purchase.

Average Days on Market: When demand increases, especially against a declining inventory, competitiveness between buyers increases and, typically, average days on market decline.

San Francisco Luxury Home Market

Here are 7 charts from the more than 20 new analyses we have posted to our luxury report, which can be found in its entirety here: San Francisco Luxury Home Market

The luxury home market in the city has mostly bounced back from the cooling it experienced late-2015 through 2016, but, generally speaking, is still not quite as strong as it was in spring 2015. The first chart below breaks out luxury home sales by dollar per square foot values. The 3 MLS sales for over $3000 per square foot in the past year were all in the new Pacific Heights luxury condo project, The Pacific.

San Francisco Luxury House Sales

House sales of $3m+ are concentrated mostly in 2 districts: The $3m to $5m market is dominated by the greater Noe, Eureka & Cole Valleys district; the $5m+ market is dominated by the Pacific & Presidio Heights, Cow Hollow and Marina district. On a dollar per square foot basis, the best values are in the St. Francis Wood/Forest Hill area, an area of large, gracious houses on larger than usual lots.

The majority of luxury houses in San Francisco were built before 1920; the great majority before 1940.

San Francisco Luxury Condo, Co-op & TIC Sales

May 2017 saw the second highest monthly number of luxury condo sales ever, just below the number of sales in March 2015.

The biggest change in the luxury home market has been the dramatic drop, almost 50% year over year, in luxury condo sales reported to MLS in the greater South Beach/ SoMa/ Yerba Buena district, even as listing inventory there has hit new highs. This is the area where large, very expensive, high-rise projects continue to come on market, and, to some degree, they may be cannibalizing MLS sales in the resale market. Foreign buyers have played a significant role here in recent years and it is possible (we do not have hard data) that this demand has declined due to political issues here and in China. This is also where the unfortunate issues at the Millennium Tower (slight sinking and tilting; multiple lawsuits) are being extensively reported upon. Even though the construction issues at the Millennium are unique to itself, it may be that the storm of negative publicity is making affluent buyers more cautious about buying in the surrounding area. If so, that effect will presumably wear off in time, which may make this a good time to buy while inventory is high.

For the time being, the luxury condo market has shifted its center back to older, northern, highly affluent neighborhoods like Pacific Heights and Russian Hill.

New Housing Construction

Socketsite.com and the San Francisco Business Times performed excellent analyses recently of the state and pipeline of new housing construction in San Francisco, which we have illustrated in the two charts below. (Unfortunately, the annual Planning Department Housing Inventory Report, which usually comes out in May or June, has been delayed, probably until August or later.)

All our Bay Area real estate analyses can be found here: Paragon Market Reports

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis. In real estate, the devil is always in the details.

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


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Paragon Real Estate’s 2017 San Francisco Farmer’s Market Guide.


Since the year began, preliminary data has been trickling in regarding the Bay Area and city economy, and the commercial and residential real estate markets in particular, that appears to indicate that things may be heating up again after clearly cooling in late 2015 and 2016 (subsequent to the increasingly torrid conditions in the 4 years prior). It is far too early to come to any definitive conclusions regarding the long-term significance of recent local or national shifts: Some of the data is not always consistent with such a conclusion; some of the data may indicate over-exuberance in the markets. Though always hesitant to make too much of short-term trends, we will take a look at a few angles on current developments. A recent article in the San Francisco Business Times (of similar title) describes what is going on in commercial real estate, while this report will primarily focus on the SF residential market.

Percentage of Home Listings Accepting Offers
by Property Type & Price Segment
Note: 12-month median sales prices in San Francisco are currently approximately $1,350,000 for houses and $1,100,000 for condos

One of the classic statistics of supply and demand is percentage-of-listings-accepting-offers: The higher the percentage, the hotter the market. In the chart above, we assessed San Francisco by property type and price segment, comparing this past April to the same months of 2015 and 2016. Note that spring 2015 was considered a particularly feverish market characterized by very high demand and very low inventory. Most of the segments saw a considerable cooling from April 2015 to April 2016. However, almost all the segments bounced back in April 2017, and, indeed, the lower price segments performed significantly better than 2 years ago.

Other standard measures of market heat such as average-days-on-market, and months-supply-of-inventory saw similar changes (approaching all-time lows), though we did not chart them for this report. On the ground, increased buyer competition for an inadequate supply of houses under $2 million and condos under $1.5 million, dovetails with the statistics. We have also heard that new-project condo sales have seen a considerable surge in buyer demand, but we cannot verify that.

It will be interesting to see if these dynamics continue through Q2, usually the most active selling season of the year, and, if so, how they will affect median sales prices: As seen in the second chart below, so far, there has been no appreciable year-over-year change. However, most listings accepting offers in April will not close sale until May, which will then be reflected in median sales price data available in June.

Year-over-Year SF Median Sales Price Comparison

Looking at 3-month rolling median sales prices in the chart above, comparing the February through April periods of 2015, 2016 and 2017, the SF median house price is relatively flat since last year, and the median condo price is relatively flat since 2015, after both saw rapid appreciation rates in the previous years. (At this point, the recent, minor percentage changes comparing 3-month periods should not be considered significant.) The flattening in condo median price for the additional year reflects the earlier and greater cooling that occurred in that market segment.

 

Comparative Neighborhood Values & Appreciation Trends

One of our readers suggested that it would be interesting to see multiple San Francisco neighborhoods illustrated on a single chart to compare home prices and appreciation rates. We got a little carried away and created more than 2 dozen graphs, of which 6 are below.

The extremely affluent Presidio Heights neighborhood has the largest houses and highest prices in the city, with next door Pacific Heights right behind.

All the charts in this series are here: San Francisco Neighborhood Comparisons, which also includes an SF neighborhood map.

If you are interested in a city neighborhood not included our full report, please let us know.

 

San Francisco Luxury Home Pricing

It has been clear over the past 2 years that the market for higher priced homes has cooled more than that for less expensive homes, and this is reflected in the first chart of this report. One of the big issues is that many luxury home sellers have simply been asking for more money than buyers are willing to pay: This is illustrated in the chart above which compares median sales prices with median asking prices, and then with the median prices of expired listings that were ultimately pulled from the market without selling.

 

Various Economic Indicators
Bay Area Employment & Unemployment Rates

The lowest unemployment rates in 15 years, but the picture in hiring and
new high-tech hiring in particular, is a bit unclear with recent shifts up and down.

S&P 500 Stock Index

Maybe some irrational exuberance at play since the election?

Housing Affordability

Perhaps the biggest social, economic and political issue in the Bay Area right now: Remaining close to all-time lows

San Francisco, Alameda & Marin Rents

Rents in all 3 counties ticked back up in Q1 after recent declines, but too much should not be made of this until substantiated over a longer term than 1 quarter

Mortgage Interest Rates

Up after the election, down since the new year began, rates remain extremely low by historical standards

S&P Case-Shiller House Price Index
Another Angle on Bay Area Home Price Appreciation Trends

According to Case-Shiller, which divides sales into 3 price tiers and measures Bay Area home price appreciation using its own proprietary algorithm (instead of median sales prices): In the period from April 2016 through February 2017 (its most recent report), less expensive homes appreciated by 7% during the period; mid-priced homes appreciated by 3%; and high-priced homes remained flat over the 11 months. Over the last year or two, the greatest pressure of buyer demand in the Bay Area has shifted to the more affordable home segment. Again, the first chart in this report highlights this dynamic in San Francisco.

C-S numbers all refer to a January 2000 home price set at 100. Thus, a reading of 249 signifies a price 149% over than of January 2000.

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

Our full article on market cycles: 30+ Years of San Francisco Real Estate Cycles

All our analyses can be found here: Paragon Market Reports

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis.

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


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A consideration of the main factors at play behind the current San Francisco real estate market, some of which reflect general macro-economic trends and some of which are specific to the city itself. As we’ve seen in 1989, 2001 and 2008, many of these factors can stall or go into reverse very quickly in the event of a large, negative, economic, political or even ecological event.

In 2016, the market in San Francisco started to cool off somewhat after 4 years of a ferociously high-demand/low-supply dynamic. By any national standard, it is still a strong market, especially in the more affordable price segments, but it has distinctly changed with listing inventory increasing and buyer demand softening. The influx of newly constructed condos have affected the condo market most of all, especially the luxury condo market.

  • Population growth vs. New Construction: San Francisco has recently been adding approximately 10,000 – 12,000 new residents per year. New construction is booming again in the city, and tens of thousands of new housing units are now somewhere in the planning and construction pipeline. Thousands of new condos and apartments (mostly at the high end of prices) hitting the market have been affecting the supply and demand dynamic, with both condo prices and apartment rents ticking down from 2015 highs – especially in those districts where new construction is concentrated. It will be interesting to see how influx continues to affect the market as more inventory arrives. There is no question that the city continues to suffer from a grievous lack of more affordable housing.

  • Employment growth: San Francisco has recently hit new highs in the number of employed residents and its unemployment rate is as low as it has ever been. Many of these new jobs – in high tech, bio tech and professional occupations – are very well paid. Approximately 14,000 units of housing have been built in San Francisco since 2010. Over the same 6 years, the number of employed residents has increased by about 100,000. In light of the mismatch between supply and demand, the pressure on housing prices is not surprising. Employment actually dropped in the first 6 months of 2016 and then surged again in mid-summer to its highest point ever.

  • Stock market upswing: Though there was some major volatility in the period from autumn 2015 through autumn 2016, adding in the recent surge after the election, the S&P 500 is way, way up from 2011. The affluent have benefited most from this large increase in the value of financial assets, and San Francisco has one of the most affluent populations in the country. When people feel wealthier, they spend more on homes, second homes and real estate investment properties. However, we believe much of the local affluent population has become somewhat more cautious with all the extreme volatility – China stock market, oil price crash, Brexit, the 2016 election – that has occurred in the stock market over the past 20 months.

 

  • Brand new wealth: Thousands of newly affluent residents, including significant numbers of millionaires and even billionaires, have been created in the Bay Area in recent years from stock options, IPOs and company sales. This super-charged the “wealth effect” on the real estate market from 2011 through mid-2015. According to Wealth-X, San Francisco ranks 3rd in the nation for number of “ultra-high-net-worth” residents. However, since mid-2015, there have been very few new IPOs, so the dynamic creation of huge amounts of brand new wealth has slowed. On the other hand, the Bay Area is still full of large start-ups like Uber, Airbnb and Palantir, which certainly have the potential to go public in the not too distant future, and start minting, once again, new millionaires by the dozens or even hundreds. It’s also interesting to note that: “San Francisco ranks first among U.S. cities in income mobility, i.e. the opportunity to rise upward on the income scale thanks to its schools, its growing economy and its compact physical size that doesn’t produce walled-off divisions.” (San Francisco: a city pushed to new limits and opportunities)
  • High rents: Purchasing a home in San Francisco, with the attendant multiple tax benefits, being able to take advantage of low interest rates, and equity accrual (as well as the possibility of future appreciation), often makes compelling financial sense if the alternative is to pay an extraordinarily high rent (with none of those benefits). SF rents started to plateau in mid-2015 and have dropped a little in 2016 and early 2017, but they are still the highest in the country.

  • Low interest rates: from 1996 to 2006, the average interest rate on a 30-year fixed rate loan was approximately 6.3%. By late July 2016, it was running under 3.5%, and as of late-March 2017, it was running about 4.2%. Even after the relatively big post-election jump, the large reduction, 2007 to present, in the cost of financing has made an enormous difference in affordability and the ongoing cost of housing. To a significant degree, declines in interest rates to these near-historic lows have subsidized increases in home prices. It is extremely difficult to predict interest rate movements, but if rates continue to rise appreciably, it will certainly affect housing affordability.

  • Renting instead of selling: Very high rents and very low interest rates have convinced some owners who would have sold their homes to rent them out instead, and the Airbnb rent-to-tourists option is probably adding to this (even if in many instances, it violates city statutes.) As an adjunct to the financial calculation for renting instead of selling, we are also hearing from some owners that they are afraid that if they sell now, they or their children will never be able to afford to move back. All this further depresses the supply of new listings coming on market, exacerbating the inventory shortage. This is particularly true of houses in San Francisco, of which virtually no new ones are being built. (Condo construction is booming, and condo owners have a tendency to move much more often.) Not selling as frequently: According to a November 2016 report by ATTOM Data Solutions, “homeowners who sold in the third quarter [of 2016] had owned their home an average of 7.94 years, a new high in our data and substantially higher than the average homeownership tenure of 4.26 years pre-recession.” This big decline in turnover goes a long way to explaining the extremely low inventory levels of homes on the market: Owners are selling much less often.
  • Work there, live here: A relatively recent development, many of the people working or taking new jobs in Silicon Valley high-tech and bio-tech now insist on living in the city, creating what might be called a “reverse commute” from past patterns. The Google bus phenomenon (picking up employees in the city and ferrying them to offices in Mountain View) is just one illustration of a trend which puts considerable additional pressure on our housing market.
  • Magnet effect: Economic, social, cultural: San Francisco, a small city of 7 by 7 miles, is now the capital of perhaps the strongest, fastest growing, most lucrative, highest-prestige business segment in country: The Bay Area economy is the envy of the world. San Francisco is also in one of the most beautiful, best educated, most tolerant and culturally rich metropolitan areas in the world. That makes the city a magnet for smart, creative, ambitious people from all over the planet and they are willing to pay a premium to live here. (Of course, at certain levels of housing costs, people and companies start to look for alternatives, even if they’d much prefer to be located in SF. And that doesn’t begin to address the issue of teachers, police officers and so many other employment profiles, who can’t begin to think about affording to buy a home here.) There has clearly been a general demographic trend for post-college adults, aged 24 – 39, to move back into urban core areas – and that certainly is dramatically occurring in San Francisco. (See the books, “The Great Inversion & the Future of the American City” and “Who’s Your City? How the Creative Economy Is Making Where to Live the Most Important Decision of Your Life.”)
  • Limited supply: Almost two thirds of the city’s housing is in rental units, much of it under rent control. The number of homes suitable for owner-occupancy and available to purchase each year is relatively small, usually 6,000 to 8,000 units. The SF homes market is less than half the size of the markets in either Alameda or Contra Costa counties.Furthermore, new housing construction simply has not been adequate to the city’s needs over the past 35 years. 49% of San Francisco’s housing stock was built prior to 1940. As seen in the chart below, the surge in population during WW II led to a burst of building, which then steadily declined to clearly insufficient levels until the big increase in condo construction at the end of the 1990’s. The 2008 market crash ended that cycle, and the current feverish boom in home construction has been quickly gathering steam only in the past few years – however, as increasing volumes of new-construction housing units come on market, it has been significantly altering the supply and demand dynamic that has prevailed 2012 – 2015. Worth noting is that ever since the mid-1990’s the units being built are typically 1 or 2-bedroom condos or apartments, instead of 2 and 3-bedroom houses, i.e. the new housing units being added accommodate fewer people per unit. Our report on new housing construction in San Francisco is here: SF Housing Inventory & Construction Report

Tax benefits: We won’t count this as one of the 10 factors behind the current market, because the enormous tax benefits of homeownership in the U.S. are always present, boom or bust (until Congress legislates large, unexpected changes to U.S. tax law), but still they are a big factor underlying the housing market. Being able to deduct interest costs and property taxes allows homes to cost (much) more and yet remain affordable to buyers. And there is also the $250,000/ $500,000 exclusion of gains realized upon sale of a primary residence from capital gains taxes: There is not another financial investment we can think of that allows one to reap profits of this magnitude without any tax liability. It’s interesting to note that the tax benefits of homeownership in this country are rarely found anyplace else in the world.

This chart below is a simplified, smoothed-out and approximate look at the last few real estate cycles in the San Francisco Bay Area, illustrating estimated percentage changes in home prices from successive peaks and bottoms of the market. The years between these high/low points are simply depicted here as straight lines (which does not reflect reality). Different market segments – areas, property types, price segments – have experienced varying appreciation and depreciation rates over the years and how this chart applies to any specific property is unknown without a tailored analysis.

We want to reiterate that none of this implies justification for an ever-appreciating real estate market: Almost all these factors can stall or even go into reverse, and as mentioned earlier, in 2016, conditions began to cool. Real estate and financial markets are prone to a wide variety of extremely complex and hard-to-predict economic and political factors, and they typically go in cycles: up, down, flat, up again (repeat). And economic and market fluctuations are not uncommon within cycle phases. Still, the above factors are, we believe, the fundamental realities underpinning the city’s homes market in recent years.

San Francisco’s real estate market is now heading into the beginning of its 6th year of its current market recovery since the crash and recession that ran 2008 – 2011.

Our full report on real estate cycles is here: 30+ Years of San Francisco Real Estate Cycles


Mary is the perfect agent to help anyone navigate the treacherous SF real estate market. Her knowledge of all products is very deep, and her attention to detail is amazing. Most critically, not only will you enjoy working with her, but other agents love working with her, too. This is invaluable in any transaction. I would recommend Mary on the buy side or sell side of any property sale.
~Robert Hatton, multi-unit building owner and SF landlord