The Sky is Not Falling in San Francisco
Late August 2010 Update
In the past week or two, there have been hundreds of sky-is-falling articles in every major media outlet about how home sales drastically slumped in July when compared with June and May, or as compared to July of last year, both nationally and in the Bay Area. And that this indicates that terrible times have returned to the real estate market.
But with statistics, context is everything, and these articles show a fundamental lack of understanding of current market context and, specifically, what’s going on in San Francisco.
The first chart below is of the last 2 years’ closed home sales in SF. July 2010 is indeed well below June and May 2010, as well as significantly below July 09 and July 08. However, this is almost completely a function of the fact that deals that would have naturally and typically accepted offers (gone “under contract”) in May 2010 were rushed into April so as to meet the Federal Tax Credit deadline. Because of that crush of accepted offers in April, closed sales in May and June soared way over the sales rate of past years, but the number of May accepted offers this year was much lower than normal. Typically, May is one of the highest months for accepted offers; the lowered number of accepted offers in May translated to a lowered number of July closings. Typically, July is one of the highest closed sales months because of the high number of accepted offers in May. With the unusual events this year, the numbers were thrown off – which created the dramatic percentage declines everyone is chattering on about.
Remember: closed sales are 30 – 60 days behind the market (the time of offers being negotiated and accepted). To get a sense of current market activity, one looks at accepted offers, as in the second chart below.
In the third chart, the Months’ Supply of Inventory (MSI) for SF houses and condos is shown over the past 2 years. MSI, at a moderately low 3.8 months of inventory, hasn’t budged in three months – again one can see the effect of the April tax credit rush on the chart — and it is almost exactly the same as in July 08 and July 09. (The lower the MSI, the hotter the market.)
The fourth chart shows average Days on Market (DOM) for SF houses and condos over the past 2 years. Again the Days-on-Market has been virtually unchanged for 6 months, also virtually unchanged from July of 2008 and July of 2009. (The lower the Days on Market, the hotter the market.)
The fifth chart, median sales prices for houses and condos in SF, shows virtually no change in median sales price from July of last year (though it has jogged up and down over the individual months).
None of this is to say that the market might not enter a new great depression tomorrow. It is to say that the most recent statistics don’t currently indicate any dramatic change in market conditions in San Francisco. The fact of the matter is that right now our market is relatively steady, balanced and healthy. We’ll have to wait to see what the future brings.
All information contained herein is derived from sources deemed reliable — primarily Broker Metrics — but may contain errors and omissions, and is not warranted. Sales not reported to MLS are not included in these analyses.