Affordability & the Cost of Housing in the SF Bay Area

Home prices, affordability percentages, monthly housing costs and income requirements for SF, Marin, San Mateo, Santa Clara, Sonoma, Napa, Alameda, Contra Costa & Solano Counties

This national affordability chart above employs a different methodology than the CA county charts below: The graphed chart values (percentages) have totally different meanings.

San Francisco & Marin Counties: Long-Term Overviews

The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 3rd quarter of 2017, which measures the percentage of households that can afford to buy the median priced single family dwelling (house).

In this analysis, affordability is affected by 3 major factors: county median house price, mortgage interest rates, and the distribution of household incomes within the county. (Housing Affordability Index Methodology). The HAI uses house prices exclusively and if condos were included in the calculation, median home prices would decline, affordability would increase and income requirements and PITI costs would be reduced as well. (SF now has more condo sales than house sales, but that is not the case in other Bay Area counties.)

By definition, half the homes sold in any given county were at prices below the median sales price, i.e. there were numerous homes that were more affordable than the median prices used in this analysis. However, any way one slices it, the Bay Area has one of the most expensive – if not the most expensive – and least affordable housing markets in the country. That impacts our society and economy in a number of important ways.

Since many of the figures don’t change that much quarter to quarter, we’ve only updated some of the charts in this report with Q3 2017 data.

Our Survey of Bay Area County Markets, Trends & Demographics

Year-over-Year Changes
Year over year, affordability declined in every Bay Area county as well as in almost every other county in the state.

Long-term Bay Area Housing Affordability Trends

Affordability Percentage by Bay Area County

Note that extremely low affordability readings converged across Bay Area counties at the top of the bubble in 2006-2007. So far, there has not been a similar convergence in our current market, though affordability is generally dropping as prices increase. Most counties now have higher, and sometimes much higher, home prices than in 2007 (see chart later in report), but their affordability percentages are higher now too, instead of lower. The reason behind that apparent contradiction is the approximate 40% decline in interest rates, 2007 to 2016, as well as some increase in median household incomes.Extremely low interest rates have subsidized increasing home prices to a large degree in recent years.

San Francisco is still 5 percentage points above its all-time affordability low of 8%, last reached in Q3 2007 (even though its median house price has increased about 50% during that period). Other Bay Area counties (except for San Mateo) have appreciably higher affordability percentages, for the time being. Generally speaking, as one moves farther away from the heart of the high-tech boom, San Francisco and Silicon Valley, affordability increases.

Monthly Ownership Cost at Median Sales Price

Minimum Qualifying Income to Buy Median Priced House
Assumes 20% down payment and including principal, interest, property tax and insurance costs.

Bay Area Median House Prices

Before the high-tech boom, Marin, a famously affluent county for long time, had the highest median house price. But the high-tech boom accelerated median home prices in San Francisco and San Mateo faster and higher.

Additional chart: Median condo sales prices by county

San Francisco has a much larger and more expensive condo market than other local counties, and is the only county with a very substantial luxury condo market – one that is growing significantly with recent new-condo project construction.

Income, Affluence & Poverty

Santa Clara, San Mateo and Marin Counties have the highest median household (HH) income in the Bay Area. Though the median HH income figures of these 3 counties are almost double the national figure, their median house prices are 4 to 5 times higher, an indication that income dollars can go a lot farther in other parts of the country than they do here. Indeed an income that in other places puts you close to the top of the local register of affluence, living grandly in a 6-bedroom mansion, in the Bay Area might qualify you as perhaps slightly-upper-middle class, living in an attractive but unostentatious, moderate-sized home that costs twice what the mansion did (though, this being the Bay Area, you are probably still driving a very expensive car).

On the other hand, you live in one of the most beautiful, highly educated, culturally rich, economically dynamic, and open-minded metropolitan areas in the world.

Behind median HH incomes, each county also has enclaves of both extreme wealth and poverty within its borders.

Very generally speaking, in the Bay Area counties, renters typically have a median household income about half that of homeowners. In San Francisco, where the majority of residents are in tenant households, that significantly reduces the overall median HH income figure. The picture of housing affordability for renters in the city is ameliorated or complicated by its strong rent control laws (which, however, don’t impact extremely high market rents for someone newly renting an apartment) .

Additional chart: Homeownership Rates by County

Additional chart: Population Demographics – Children & Residents Living Alone

San Francisco has the lowest percentage of residents under 18 of any major city in the U.S. (It is famously said that there are more dogs in the city than there are children.) It also has an extremely high percentage of residents who live in single-person households – 39% – which is a further factor depressing median household income below markets with similar housing costs.

The Bay Area has approximately 2.8 million households. Of those, approximately 124,000 households have incomes of $500,000 and above, which would generally be considered to place them in the top 1% in the country by annual income. At 7.5%, Marin has the highest percentage of top 1% households, followed by San Mateo at 6.2%. With approximately 38,000 top 1% households, Santa Clara, the Bay Area’s most populous county, has by far the largest number of these very affluent households, while San Francisco has about 22,000.

It should be noted that besides high incomes per se, another factor in the Bay Area housing boom of recent years has been the stupendous generation of trillions of dollars in brand new wealth from soaring high-tech stock market values, stock options and IPOs. Thousands of sudden new millionaires, as well as many more who didn’t quite hit that level, supercharged real estate markets (especially those in the heart of the high-tech boom) as these newly affluent residents looked to buy their first homes, perhaps with all cash, or upgrade from existing ones. That is something not seen in most other areas of the country, certainly not to the degree experienced locally, and is a dynamic outside typical affordability calculations. This increase in new wealth has slowed or even declined in the past 12 months as the high-tech boom has cooled (temporarily or not, as time will tell). Still, there are dozens of local private companies, usually start-ups, some of them very large – such as Uber, Airbnb and Palantir – which are considered to be in the possible-IPO pipeline. If the IPO climate improves and successful IPOs follow, a new surge of newly affluent home buyers may follow.

Additional chart: Bay Area Populations by County

A look at two very different income segments in the Bay Area, those households making less than $35,000 and those making more than $200,000. The $35,000 threshold is not an ironclad definition of poverty, especially since housing costs (by area, and whether market rate, subsidized or rent-controlled), household sizes and personal circumstances vary widely, though it is clearly difficult for most area families trying to live on that income. At over 25%, San Francisco has the highest percentage of households with incomes under $35,000 and, at 22%, Marin has the highest percentage making $200,000 and above.

Amid all the staggering affluence in the Bay Area, and huge amounts of new wealth generated by our recent high-tech boom, very significant percentages of the population still live in poverty, especially if our extremely high housing costs are factored into the calculation. (The above chart calculates poverty rates by different criteria, the higher one factoring in local costs of living.) The economic boom has helped them if it resulted in new, better paying jobs, unfortunately not as common a phenomenon as one would wish for the least affluent. It hurt them, sometimes harshly, if their housing costs escalated with the increase in market rates.

Mortgage Interest Rates since 1981

Interest rates play an enormous role in affordability via ongoing monthly housing costs, and interest rates, after their recent post-election jump are about 35% lower than in 2007. To a large degree this has subsidized the increase in home prices for many home buyers. It is famously difficult to predict interest rate movements, though there is general agreement. Any substantial increase in interest rates would severely negatively impact already low housing affordability rates.

Longer-Term Trends in Prices and Rents

The same economic and demographic forces have been putting pressure on both home prices and apartment rents.

Bay Area Median House Prices since 1990

If one looks at charts graphing affordability percentages, home prices, market rents, hiring/employment trends and to some degree even stock market trends, one sees how often major economic indicators move up or down in parallel.

Monthly Rental Housing Costs

The recent economic boom has added approximately 600,000 new jobs in the Bay Area over the past 6 years, with about 100,000 in San Francisco alone – with a corresponding surge in county populations. Most new arrivals look to rent before considering the possibility of buying. The affordability challenges for renters (unless ameliorated by rent control or subsidized rates) has probably been even greater than that for buyers, since renters don’t benefit from any significant tax benefits, from the extremely low, long-term interest rates, or by home-price appreciation trends increasing the value of their homes (and their net worth). In fact, housing-price appreciation usually only increases rents without any corresponding financial advantage to the tenant. Rents in the city have been plateauing in recent quarters and may even be beginning to decline as the hiring frenzy has slowed and an influx of new apartment buildings have come onto the market – but they are still the highest in the country.

Bay Area Rent Report

Affordable Housing Stock & Construction in San Francisco

Additional Chart: Affordable Housing Construction Trends in San Francisco

There may be no bigger political and social issue in San Francisco right now than the supply (or lack) of affordable housing: Battles are being fought, continuously and furiously, in the Board of Supervisors, at the ballot box and the Planning Department by a wide variety of highly-committed interests, from tenants’ rights and neighborhood groups to anti-growth factions and developers (to name a few). It is an extremely complicated and difficult-to-resolve issue, especially exacerbated by nimby-ism and the high cost of construction in the city. SPUR, a local non-profit dedicated to Bay Area civic planning policy, estimated in 2014 that the cost to build an 800 square foot, below-market-rate unit in a 100-unit project in San Francisco was $469,800 – and we have seen higher estimates as well.

This fascinating graphic above, based on SF Controller’s Office estimates from late 2013, breaks down SF housing supply by rental and ownership units, and further divides rental by those under rent control. All the units labeled supportive, deed restricted and public housing could be considered affordable housing to one degree or another, i.e. by their fundamental nature their residents are not paying and will never pay market-rate housing costs. (Units under rent control will typically go to market rate upon vacancy and re-rental, though rent increases will then be limited going forward.) Adjusted for recent construction, there are roughly 34,500 of these units out of the city total of about 382,500, or a little over 9% of housing stock. Section 8 subsidized housing would add another 9,000 units.

There are currently many thousands of affordable housing units, of all kinds, somewhere in the long-term SF Planning Department pipeline of new construction, though many of them are in giant projects like Treasure Island and Candlestick Park/Hunter’s Point, which may be decades in the building. But it is generally agreed that new supply will never come close to meeting the massive demand for affordable housing, further complicated by the question of what exactly affordable means in a city with a median home price 5 times the national median, typically well beyond the means of people such as teachers and members of the police force. One corollary of increasing affordable housing contribution requirements for developers and extremely high building costs is that developers are concentrating on building very expensive market-rate units – luxury and ultra-luxury condos and apartments – to make up the difference.

Other reports you might find interesting:

Survey of SF Bay Area Real Estate Markets
10 Factors behind the San Francisco Real Estate Market
30+ Years of San Francisco Bay Area Real Estate Cycles
San Francisco Neighborhood Affordability

All our analyses can be found here: Paragon Market Reports

Our sincere gratitude to Leslie Appleton-Young, VP & Chief Economist, Oscar Wei, Senior Economist, and Azad Amir-Ghassemi, research analyst, of the California Association of Realtors, for their gracious assistance in supplying underlying data for the CAR Housing Affordability Index calculations.

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. All numbers should be considered general estimates and approximations.

© 2017 Paragon Real Estate Group

2017 SF Holiday Events Calendar

There are many great things to enjoy in our wonderful Bay Area now through January. Take a look at some of the events that will “Add a little sparkle to your holidays” in our events guide this winter season.

Dynamic October Market in SF Real Estate

The October 2017 median house sales price in San Francisco surged over $100,000 above the previous peak in May to hit a new high at $1,588,000 (sales reported by 11/5/17). A major factor was that October was a record-breaking month for luxury house sales, and more sales of expensive homes pull up the median price. The median condo sales price, at $1,180,000, was a tad below the recent peak hit in August, and luxury condo sales reported to MLS were well below their peak sales volume reached this past June. The luxury market is covered further down in this report.

San Francisco Monthly Median Home Price Trends

We prefer measuring median price trends by periods longer than 1 month (which are prone to fluctuate considerably without great meaningfulness), and the below chart illustrates rolling 3-month median price trends for houses ($1,415,000 for August, September, October) and condos ($1,175,000), and 6-month rolling median prices for TICs ($982,500). Remember that median price changes are not perfect measurements of changes in fair market value.

San Francisco 3-Month Rolling Median Home Price Trends

And this chart below based on CoreLogic S&P Case-Shiller data compares the appreciation of the more expensive Bay Area home markets (blue line) – such as most of SF, Marin, San Mateo and Diablo Valley – to the overall national trend (green line), going back to 1987. It is interesting to see where our local appreciation rates have diverged from national rates: The divergence since 2012 has been particularly striking.

Note that the numbers on this chart all refer to a January 2000 price of 100. So, the latest Bay Area reading of 238 means that home prices here have appreciated, according to Case-Shiller, by 138% since January 2000. National home prices appreciated by 95% during that period.

San Francisco vs National Home Price Appreciation

San Francisco Neighborhood & Realtor District Map

San Francisco Neighborhood & District Map

San Francisco Market Overviews
SF House, Condo & TIC Sales by Realtor District

Some districts are dominated by house sales and others by condo sales. The most balanced is the greater Noe, Eureka & Cole Valleys district with almost equal numbers of both. Condo sales now outnumber house sales in the city, a trend which will continue to accelerate with new construction. Looking at the horizontal columns below, the gray portion represents house sales, the teal, condo sales, and the green, TIC sales.

San Francisco House & Condo Sales by District

SF Home Sales by Price Segment

Home sales under $1m are dwindling, and 70% of those are condos or TICs.
The highest number of sales is now in the $1m to $1.5m price segment.

San Francisco Home Sales by Price Segment

Sales by Property Type & Bedroom Count

Compared to other Bay Area markets, SF has more small, 2-bedroom houses and fewer big, 5+ BR, house sales – and far more condo sales at much higher prices than in other counties. By far the most prevalent SF home sale now is a 2-bedroom condo.

San Francisco Average Sales Prices by Bedroom Count

Link to Chart: New Listings Trends since 2007
Link to Chart: Unit Sales Trends since 2007

San Francisco Luxury Homes Market

As mentioned before, luxury house sales hit a new high in October 2017: In recent years, October has become the biggest month for very expensive house sales. This is not the case for luxury condos, which typically peak in spring. Looking at broader trends in the second chart below, the luxury home market grew dramatically from 2012 through 2015, cooled significantly in 2016 (especially the luxury condo segment), and then surged back in 2017 to hit new highs. But then everything seems to be surging higher nowadays, from stock markets to homes to iPhone prices.

Luxury house sales in October were concentrated, highest to lowest numbers, in the Pacific Heights-Marina district (D7), the Noe, Eureka & Cole Valleys district (D5), and the Lake Street-Sea Cliff district (D1). These 3 districts contained about 80% of the sales. Other luxury house sales were scattered singly around the city: Russian Hill, Telegraph Hill, Inner Sunset, Potrero Hill, Mission, Bernal Heights, Hayes Valley and Lower Pacific Heights. The 3 districts that dominated luxury condo sales, with 9 to 11 sales each, were the Russian & Nob Hills district (D8), Pacific Heights-Marina (D7), and the South Beach-Mission district (D9). There were also a handful of sales in Noe-Eureka Valley (D5), and a couple in Lake Street-Richmond (D1). (Sales reported by 11/5/17.)

San Francisco Luxury House Sales by Month

Link to Chart: Luxury Condo Sales by Month

San Francisco Luxury Home Sales Trends

Median Home Price Trends by Neighborhood
2005 to Present

Following are 2 charts on houses and one on condos illustrating home price appreciation trends over the past 12 years in selected neighborhoods. We generally picked neighborhoods with greater quantities of sales, but please contact us if you would like information on one not included below. (The highest priced house neighborhoods like Pacific and Presidio Heights – with median prices in the $6m range – have relatively few sales and an enormous range in sales prices, which has a tendency to make the trend lines jump up and down somewhat erratically.)

Neighborhoods with current median house prices under $1.5m have generally
seen smooth, consistent appreciation since the recovery began in 2012.

San Francisco Neighborhood More Affordable Median House Price Trends

Neighborhoods with current median house prices of $1.5m to $3m:
Some of these saw median price dips in 2016, but recovered in 2017

San Francisco Median House Price Trends over $1,500,000

Two-Bedroom Condos – Median Sales Price Trends:
Some SF condo markets saw significant dips in 2016, but recovered in 2017

On the chart below, South Beach would ideally be divided into two distinct neighborhoods, with condos on lower floors of highrises in one, and condos on higher floors in another (distinctly more expensive). Since that is not easily possible, the median price below is a blend of both. To a large degree, all median sales prices are derived from a blend of a wide range of individual sales, but the highrise dynamic is concentrated in the greater South Beach area.

San Francisco Median 2-bedroom Condo Price Trends

SF Neighborhoods & Property Types: Hottest to Coolest Markets

The following charts looks at the various districts of the city by a number of standard statistical measures of supply and demand, or market heat. As has been the case for the last couple years, generally speaking, the greatest pressure of buyer demand has continued to be focused on the more affordable house neighborhoods (affordable by SF standards), such as those in the Sunset/Parkside District.

Note: These are general statistics and small differences between districts or market segments are not particularly significant.

Overbidding Asking Prices

First houses and then condos: The higher the %, the hotter the market.
Some of these percentages are staggeringly high.

San Francisco Neighborhood Overbidding House List Prices

Overbidding in the condo market is not quite as frantic as with houses.

San Francisco Neighborhood Overbidding Condo Prices

Months Supply of Inventory & Average Days on Market

First houses, then condos: The lower the statistics, the hotter the market.

San Francisco Houses - Months Supply of Inventory and Days on Market

San Francisco Inventory and Days on Market - Condos

Hottest to Coolest by Price Segment & Property Type

To a large degree, what is seen below dovetails with the analysis by district above: More affordable home segments are strongest, and the affordable house segment in particular has been crazy feverish. The ultra-luxury condo market is, by far, the softest: Part of this is certainly due to competition from new, luxury condo projects coming on market.

San Francisco Sales Prices to List Prices

San Francisco Market Absorption Rate

San Francisco MSI by Price Range

Seasonality & the SF Homes Market
Advantages to buying during the mid-November to mid-January slowdown

Just before Thanksgiving the market begins to rapidly subside until starting to revive about 7-8 weeks later. Many buyers simply check out during this period, but there are good reasons for staying engaged – mainly the possibility of getting a much better deal. Starting in October and extending into November, sellers begin reducing prices in large numbers as they try to capture the attention of disappearing buyers: Buyers should treat these as brand new listings and take a new look. Competition between buyers drops dramatically during the mid-winter period, and since competitive bidding is the biggest single factor behind higher prices, its decline can mean significant savings. Fewer buyers also means that sellers are often more willing to negotiate: Throw offers in at whatever price you feel is right and see where they go. It is true that the number of new listings coming on markets plunges, but there are still hundreds of listings to consider for those willing to stay in the game.

The dark red lines in the charts below illustrate these big, seasonal market shifts.

Price Reductions Soar in October/November

San Francisco Home Price Reductions

Overbidding Declines

San Francisco Overbidding Seasonality

San Francisco Seasonality Selling over List Price

Average Days on Market Increases
Making sellers more willing to negotiate

San Francisco Market Seasonality - Days on Market

Inventory Drops
But hundreds of listings remain on market

San Francisco Seasonality and Active Listings on Market

Median Home Prices Drop
due to a number of factors, including a reduction in demand

San Francisco Seasonality and Median home prices

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

Link to SF Neighborhood Home Price Tables
Link to our SF luxury house market update
Link to our SF luxury condo market update
Link to our apartment building market report

Please let us know if you have questions or we can be of assistance in any other way. Information on neighborhoods not included in this report is readily available.

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. Late-reported MLS activity may change the statistics for the last month in some charts.

© 2017 Paragon Real Estate Group

San Francisco Bay Area S&P Case-Shiller Home Price Index

Since Case-Shiller Indices cover large areas – 5 counties in the SF Metro Area – which themselves contain communities and neighborhoods of widely varying home prices, the C-S chart numbers do not refer to specific prices, but instead reflect home prices as compared to those prevailing in January 2000, which have been designated as having a value of 100. Thus these charts are broad generalizations about appreciation (or depreciation) trends: for example, a reading of 250 signifies that home prices have appreciated 150% above the price of January 2000. For data on actual median home prices for specific locations, please access our main market analysis page: Paragon Market Reports. At the very bottom of this report, there are a few charts on overall median home prices in SF, Marin and Lamorinda/Diablo Valley.

Please note that we don’t update every chart in this report every month since what is most meaningful are longer-term trends.

Long-Term Appreciation Rates by Price Segment

Case-Shiller divides all the house sales in the SF metro area into thirds, or tiers. Thus the third of sales with the lowest prices is the low-price tier; the third of sales with the highest sales prices is the high-price tier; and so on. (The price ranges of these tiers changes as the market changes.) As seen in this first chart, the 3 tiers experienced dramatically different bubbles, crashes and recoveries over the past 12 years, though the trend lines converged again in 2014 – this is discussed in detail later in this report.

Short-Term Appreciation Rates by Price Segment

In recent months, home prices have been increasing significantly, with more affordable houses seeing by far the highest appreciation rates. But 2017 has been an unexpectedly feverish market for all market segments.

Longer-term trends are always much more meaningful than short-term fluctuations. 

The S&P CoreLogic 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 San Francisco’s, Marin’s and Central Contra Costa’s house sales are in the “high price tier”, so that is where we focus most of our attention. We’ve also included some data on the Case-Shiller Index for metro area condo values, but unless otherwise specified, the charts pertain to house prices only. 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. In effect, we are looking into a rearview mirror at the market 3 to 5 months ago. The August 2017 Index was published at the end of October 2017. Much more information regarding the Index’s methodology can be found on its website.

The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa. (And we believe the Index generally applies to the other Bay Area counties as well.) There are many, vastly different real estate markets found in such a broad region, moving at different speeds, sometimes moving in different directions. San Francisco’s single family dwelling (SFD) sales, which are what Case-Shiller measures, are only 7% to 8% of the total SFD sales in the 5-county metro area, while Alameda and Contra Costa make up over 70% of SFD sales.Therefore, the Index is always weighted much more to what is going on in those East Bay markets than in the city itself. (Marin’s percentage is about 7% and San Mateo’s about 14%.) SF makes up a much larger proportion of condo sales in the metro area, as condos are now the dominant type in home sales now in the city.

These first 2 charts below 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 2012 – 2015, home prices dramatically surged in the spring (often then plateauing or even ticking down a little in the following seasons). The surges in prices that have occurred in the spring selling seasons reflect frenzied markets of high buyer demand, low interest rates and extremely low inventory. In San Francisco itself, it was further exacerbated by a rapidly expanding population and the high-tech-fueled explosion of new, highly-paid employment and new wealth creation. The markets in the Bay Area are appreciating at somewhat different speeds, depending on the price segment. As clearly seen in the second chart above, the low-price tier has been seeing the most dramatic movement, but all 3 segments saw spikes in spring 2017.

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

Short-Term Trend: Past 12 Months

This chart below highlights the highly seasonal nature of home price appreciation over the past 5 years.

Longer-Term Trends & Cycles

The next 4 charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco, Marin, San Mateo and the most affluent portions of other counties), showing the cycle of recession, recovery, bubble, decline/recession 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 (as seen in the third chart below).

Comparing San Francisco vs. U.S. Appreciation since 1987

Interesting divergences occurred after the 1989 earthquake, making the SF recession longer and deeper in the early 1990’s, during the dotcom spike and drop, and since the latest market recovery began in 2012, which in SF was supercharged by the local boom in high-tech.

Annual MEDIAN SALES PRICE Changes in San Francisco
As a point of comparison: NOT Case-Shiller data. First houses, then condos.

In the city, the house median sales price continued to appreciate in 2016, albeit at a much slower rate than the previous 4 years. The condo median sales price, impacted by both a cooling in the market and a surge in new-construction condo inventory, generally remained flat year over year in 2016. Both segments have seen new bursts of appreciation in the first half of 2017 (not charted below).

Different Bubbles, Crashes & Recoveries

This next 3 charts compare the 3 different price tiers since 1988. 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/distressed property crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries. The mid-price-tier is just now back to its previous peak values, but the low-price-tier is still below its artificially inflated peak value of 2006 (though recently, it has been appreciating quickly). It may be a while before the low-price-tier of houses regains its previous peak. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, has now significantly exceeded its previous peak values of 2007. Most neighborhoods in the city of San Francisco itself have now surpassed previous peak values by very substantial, and sometimes astonishing margins.

Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers though, generally speaking, you will find all 3 tiers represented in different degrees in each county. Bay Area counties such as Alameda, non-Central Contra Costa, Napa, Sonoma and Solano have large percentages of their markets dominated by low-price tier homes (though, again, all tiers are represented to greater or lesser degrees). San Francisco, Marin, Central Contra Costa (Diablo Valley & Lamorinda), 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 price thresholds for the different tiers changes every month, based upon the prices of the homes that sell in that month, so you may see small variations on various charts. For example, in the past year, the threshold for the Bay Area high-tier house price segment has ranged from $956,000 to $1,074,000 (in August 2017). We don’t always adjust these figures in every monthly chart.

Low-Price Tier Homes: Under $663,000 as of 8/17

Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery but still a tiny bit below 2006-07 peak values. Currently appreciating more quickly than other price tiers.

Mid-Price Tier Homes: $663,000 to $1,074,000 as of 8/17

Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline) than low-price tier. A strong recovery has put it somewhat above its previous 2006 peak.

High-Price Tier Homes: Over $1,074,000 as of 8/17

Much smaller bubble/ much smaller crash:
84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Has been climbing well above previous 2007 peak values.

Case-Shiller Index for SF Metro Area CONDO Prices

High Price Tier vs. Low Price Tier Appreciation
2012 to Present

The more affluent neighborhoods led the city and the Bay Area out of recession in 2012, surging quickly, while the lower priced tier, still trying to recover from the huge distressed property/foreclosure crisis, lagged well behind. That dynamic shifted: the low-price tier caught up in 2014, and lately, as affordability has become an ever more pressing concern, it has become the greatest focus of buyer demand and has been appreciating significantly more quickly than than more expensive home segments. (Even though many of the more affordable houses in San Francisco, Marin, San Mateo and Lamorinda/Diablo Valley would actually qualify as high-price tier houses by overall Bay Area standards, the underlying dynamics are similar to Bay Area low-price tier homes, i.e. each market area’s dynamics reflect its own division into most affordable (low), mid-price, and more expensive (high) home segments).

In San Francisco, where many neighborhoods vastly exceed the initial price threshold for the high-price tier, declines from peak values in 2007 in those more expensive neighborhoods typically ran 15% – 20%, and appreciation over previous peak value has also exceeded the high-price tier norm.

San Francisco, Marin and Central Contra Costa
Median Sales Price Trends

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. 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 construction projects hitting the market, inventory available to purchase, and significant changes in the distressed and luxury home segments.

Marin County

Central Contra Costa County

Bay Area Counties Median Price Trends

And here are a few charts looking at San Francisco median sales price appreciation trends in specific neighborhoods.

Seasonality & the San Francisco Real Estate Market

Seasonality typically affects inventory levels, buyer demand and median home prices, often in very significant ways – as is illustrated in the following charts. However, it is not the only factor affecting market conditions and trends – general economic conditions and financial market movements, new construction projects coming on market, significant changes in interest rates, local stock market IPOs, natural and political events, and other factors can and do impact the market as well, sometimes quite suddenly.

It is also worth noting that new listings and new sales occur every month of the year – and sometimes, depending on prevailing market conditions and the specific property, buying or selling during the slower periods of the year can be the smart strategy. For buyers in particular, though the supply of active listings is somewhat lower during mid-late summer and mid-winter market slowdowns, and the number of new listings dwindles, the competition for homes is much lower as well. There are many more price reductions and increased seller willingness to negotiate list prices. The result is that buyers can sometimes make the best deals during these periods: Many of the charts below illustrate this opportunity.

Because of the significant summer and winter slowdowns, it is difficult to come to definitive conclusions about the condition and direction of the market during July/August, and December/January. One really has to wait for the autumn market to begin in mid-September with the typical surge of new listings, or the spring market to begin in late February/ early March to get a sense of where the market may be heading next.

The devil’s always in the details, and the details of the market change constantly. Still, there is a typical and dramatic ebb and flow to the level of activity in the market that correlate with seasonality, and that is what this report explores from a variety of angles.

Without inventory and buyers wanting to purchase, there is no market. These first charts show the classic effects of seasonality on supply and demand.

Inventory
 

Buyer Demand, Price Reductions & Overbidding

For the last few years, spring has been the season of the greatest market frenzy, which shows up in Sales Price to Original List Price ratio (a good measurement of the competitiveness of the market), and the percentage of listings selling for over final list price..

As seen in these next charts, the higher-price end of the market is usually much more affected by seasonality that the general market. Among other effects, this will usually raise the median sales price during the peak spring and autumn selling periods, and lower them in the slower periods of summer and mid-winter.

These final 2 charts illustrate both the rapidly appreciating real estate market since 2012 and the shorter term ups and downs that seasonality can play in median home prices – which sometimes have little to do with changes in fair market value. The Case-Shiller Index chart attempts to track changes in fair market value, and the effect of seasonality is dramatically illustrated. Of course, in an appreciating or depreciating market, there are usually other factors impacting median sales prices beside seasonality – as always, what is most meaningful is the longer term trend in home prices, not short-term fluctuations.

Fluctuations in median sales prices are not unusual and these fluctuations can occur for other reasons besides changes in value, such as seasonality; inventory available to purchase; availability of financing; changes in buyer profile; and changes in the distressed and luxury segments. How these statistics apply to any particular property is unknown without a specific comparative market analysis. All data from sources deemed reliable, but may contain errors and is subject to revision.

© 2017 Paragon Real Estate Group

Q3 SF Real Estate Market Review

Year-over-year, a low inventory homes market dropped even lower, while buyer demand increased to keep the pot boiling in San Francisco through the third quarter, when activity typically cools down between the spring and autumn selling seasons. Since closed sales in each month mostly reflect the market heat in the previous month, when the offers are actually negotiated, we will not have hard data on September until October sales data becomes available in November. One thing we do know is that the number of new listings coming on market in September, which is usually the month of the year with the highest number of new listings, is down considerably from last year – but the number of listings accepting offers increased: Less inventory, but more demand.

Q3 SF Median Home Sales Price Changes since 2005

San Francisco Q3 Median Home Price Trends

The Q3 SF median house sales price was $1,365,000 and the median SF condo sales price was $1,175,000, considerable year-over-year increases over Q3 2016 prices: 7% and 11% respectively. It is not unusual for median prices to drop from Q2 to Q3, to a large degree due to the seasonal decline in luxury home sales, as well as the typical overall market cooling during the summer, and this occurred for houses, which dropped $75,000 from Q2, similar to drops in previous years. But condos bucked this trend and increased $40,000 quarter to quarter. (Q2 to Q3 change is not illustrated on this chart.) However, while the house inventory in the city has been relatively unchanged for 60+ years, tens of thousands of new condos have come into the market over recent decades, which means that comparing the basket of sales in different periods is not always apples to apples.

Q3 San Francisco Market Trends since 2005
Comparing Q3 statistics for the past 12 years

Q3 New Listings Coming on Market since 2005

New listings hitting the market dropped appreciably year-over-year, doing no favors for buyers competing for homes in Q3 overall, and in September specifically.

San Francisco Q3 New Home Listings on Market

Months Supply of Inventory (MSI), Q3 since 2005

MSI compares demand to supply in one statistic: The lower the MSI, the higher the demand vs. the number of listings available to purchase. The MSI for the SF house market in Q3 2017 was as low as in any Q3 during the past 12 years. For San Francisco condos, the MSI was somewhat higher, but still historically low (but does not include the substantial inventory of new-project condo listings, not listed in MLS). Both are down significantly from Q3 of 2016: 2016 was a cooler market between two very hot markets in 2015 and 2017.

San Francisco Q3 Months Supply of Inventory

Average Days on Market, Q3 since 2005

San Francisco Q3 Days on Market

Overbidding List Prices
by Month since December 2015

In the last 6 years, overbidding percentages have usually declined from the Q2 spring selling season to the quieter Q3 summer market. But not this year: This year overbidding increased in July and September to their highest points since mid-2015.

San Francisco Overbidding Home Prices

Context Economic Factors to Bay Area Housing Markets

Market-Context-Tile_V2.jpg

We recently completed a report placing the Bay Area housing market within the context of a wide variety of other economic and demographic dynamics, such as population growth, employment and hiring, the stock and the IPO markets, consumer confidence, interest rates, commercial lease rates, , aging homeowners (who sell less frequently), housing affordability and new housing construction. Because conditions, trends and cycles seen among them are, more often than not, closely interrelated. The full report is online here: Economic Context Report.

San Francisco Luxury House & Condo Markets

In September, we issued 2 detailed reports on the San Francisco luxury house market, and the SF luxury condo, co-op and TIC market. Above are 2 of many updated analyses. The complete reports can be found here:

Link to our SF luxury house market update
Link to our SF luxury condo and co-op market update

San Francisco Investment Property Market

After dropping in 2016, SF residential rents appear to be making a small recovery, though the data is still very short-term, and there are thousands of new apartments in the new construction pipeline in the city. This chart is from our latest report on the San Francisco, Alameda and Marin multi-unit residential markets:

Link to our apartment building market report

Trends in Selected San Francisco Neighborhoods

We have dozens of analyses of appreciation trends within specific SF neighborhoods and districts, and below is a sampling, some by median sales price and others by average dollar per square foot value. Some city neighborhoods plateaued or saw declines in values in 2016, when segments of the market distinctly cooled: Generally speaking, these were more expensive home segments, and condo markets most impacted by new-project condos coming on market with major new supply. Affordable house markets largely continued to appreciate in 2016. In 2017 to date, most areas of the city have experienced further appreciation.

Changes in these statistics do not necessarily correspond exactly to changes in fair market value, as they can be affected by a variety of factors. Neighborhoods with relatively few sales and broader ranges in individual sales prices are most prone to fluctuations unrelated to changes in fair market value. Longer-term trends are always more meaningful than shorter term. If you are interested in a neighborhood not included below, please let us know.

Please let us know if you have questions or we can be of assistance in any other way. Information on neighborhoods not included in this report is readily available.

SF neighborhood home price tables: Median Sales Prices by Bedroom Count

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

Over the past 12 months, Paragon sold more San Francisco residential and multi-unit residential real estate than any other brokerage. (Dollar volume sales reported to MLS per Broker Metrics.)

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

 No one knows San Francisco real estate better than Paragon.