Paragon Market Dynamics Analysis: June 2010 Update

San Francisco Real Estate: June 2010 Update

 
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SF Homes Accepting Offers
The market cooled in May after the frantic rush to get offers accepted before April 30th so as to qualify for both the expiring Federal tax credit & the new California tax credit. That rush inflated April’s results and deflated May’s, but May 2010 was still 9% above May 2009. Last year, the market did not slow appreciably — as is typical — during the summer months. We’ll see what happens in the summer of 2010.

 
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Inventory Absorption
This chart reflects a market that is cooling a little from the frenzy of April: both accepted offers and new listings are down a little; and residual inventory is up a little (but still lower than most of the past year). Residual inventory reflects listings that were active (available) on the last day of the month, but listed prior to the first day of the same month, i.e. listings from prior months that have not yet accepted offers.

 
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SF Homes for Sale
The listing inventory dipped 4% from April to May, and is 10% below that of May 2009.

 
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Median House Price
For 13 months, the monthly median price for SF houses sold has oscillated within a range 7% above or below $750,000, reflecting no established trend either up or down – which might be a definition for relative stability. Monthly changes in median price are generally not meaningful; longer term trends are meaningful. The median SF house price for May 2010 was virtually the same as in May, June, October and December of 2009.

 
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Median Condo Price
The monthly median price for SF condos sold in the city over the past 13 months shows the same basic stability as the median price for houses, generally jogging up and down within a relatively narrow band.

 
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Months Supply of Inventory (MSI)
With the reduced number of homes accepting offers in May, the MSI in San Francisco went up a little. This is not terribly meaningful since it mostly reflects accepted offers that would have occurred in May being rushed into April to qualify for the Federal tax credit. In any case, the MSI is still quite low, reflecting a relatively tight inventory of homes for sale as compared to buyer demand.

 
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Average Days on Market (DOM)
The average number of days between a house or condo in San Francisco going on market and it accepting an offer continues to decline. Obviously, the lower the days-on-market figure, the hotter the market. This average does NOT include those homes which have not accepted offers.

 
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SF Luxury Houses Accepting Offers
More luxury houses accepted offers in May than in any month over the past 2 years. We’ll have to wait to see if this is the beginning of a sustained surge in sales. Since luxury homes didn’t qualify for the Federal tax credit, the credit’s expiration had no impact on luxury home sales. In SF, a luxury house is one which sells for $2,000,000 and above.

 
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SF Luxury Condos Accepting Offers
Luxury condo sales have not bounced back significantly and remain well below sales levels at the height of the market 2 to 3 years ago. Because of this, pricing correctly is especially critical in this market segment. In SF, a luxury condo is one which sells for $1,500,000 and above.

 
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Distress Sales as a % of Total SF Home Sales
The striped area of each column delineates the unit sales of bank-owned homes and short sales against total home sales. The percentage of distress sales in SF has remained relatively stable over the past year at 12% – 16% (which is much lower than most Bay Area counties). Though such sales now occur everywhere in the city, they are mostly concentrated in a few areas. A short sale is when the existing mortgage and other monetary liens exceed the home’s market value; thus the lender must agree to reduce the loan pay-off amount for the sale to close.

 
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Distress Sales in Realtor District 10
District 10, which covers a large swath of neighborhoods running along the southern border of San Francisco from Oceanside to Bayview, is the district most impacted by foreclosures, the subsequent bank-owned sales, and short sales. This chart shows the percentage of distress sales of houses in District 10.

 
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District 10 Median Prices: Distress vs. Non-Distress
Bank-owned (REO) and short sale properties sell at a significant discount (generally 15% – 25%) to non-distress listings. Sometimes there are major property-condition or circumstances issues with REO homes, and REO homes are typically priced to sell quickly (often selling for over asking price). Of course, competing with so many REO & short sale listings also drags down the values of regular listings in this district.

 
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SF Home Sales by Price Range
This chart shows both the quantity of sales in each price segment and which segments have seen significant increases in unit sales comparing the past 12 months with the 12 months preceding. As one can see, in both categories, sales under $1,000,000 predominate, with by far the largest segment in San Francisco being those homes selling between $500,000 and $750,000. Which also qualified for the Federal tax credit.

 
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Mortgage Rates
Contrary to the predictions of most pundits, and substantially due to Europe’s sovereign debt crisis, interest rates continue to remain at their lowest levels in the past 40 years. The effect such rates have on the cost of home ownership (and on the market) is enormous.