Real Estate Cycles, Interest Rates & Neighborhood Appreciation Trends

The first chart below is a simplified graph based on the S&P Case-Shiller Home Price Index illustrating percentage increases and decreases in prices for houses in the higher-price tier. The markets in San Francisco, Marin, San Mateo and Lamorinda/Diablo Valley are generally dominated by high-price tier home sales. (If you wish our chart of market cycles for low-price or mid-price homes, please let us know.)

All the short-term fluctuations up and down have been removed so that the chart only reflects major turning points in the market. This chart is a general overview for 5 Bay Area counties, and there have been significant variations between market trends in different neighborhoods, cities and counties.

San Francisco Median Sales Price Trends
since 1994

Year-over-year median sales prices for SF condos and TICs have plateaued in 2016, while median house prices have continued to appreciate, albeit at an appreciably slower rate than the previous 4 years.

Note that the Case-Shiller Index does not measure home price appreciation by changes in median sales price (as in the second chart above), but uses its own special algorithm, which it believes adjusts for factors that often affect overall median sales prices, but are not related to changes in fair market value of specific properties.

Our complete report on cycles is here: 30+ Years of SF Bay Area Real Estate Cycles. This is by far the most widely read report on our website.

Short & Long-Term Mortgage Interest Rate Trends

Interest rate movements are much in the news since the election, and below are 2 charts illustrating short-term and long-term trends. Interest rates can be very volatile and affected by a wide range of economic and political factors: Rate changes are famously difficult to predict. Most experts believe the Federal Reserve Bank will raise its benchmark rate, for the first time in 12 months, later this month. Needless to say, mortgage interest rates play a large role in ongoing housing costs, except for buyers paying all cash.

Our post-election report is here: Interest Rates & Housing Affordability

Average Dollar per Square Foot Trends by District
San Francisco HOUSE Sales, 2011-2016 YTD

Realtors divide the city into 10 different districts. For example, Pacific & Presidio Heights, Cow Hollow and the Marina constitute District 7. The central cluster of neighborhoods surrounding Noe, Eureka and Cole Valleys make up District 5. The broad area running south of Market all the way to Inner Mission and Bernal Heights is District 9, and so on. Some districts contain neighborhoods of relatively similar values, such as D5 and D7, and others contain neighborhoods of significantly varying values: For example, D8 includes both Russian Hill and the Tenderloin. In any case, using districts allows us to look at what is broadly going on in the city without breaking out the 70-odd individual neighborhoods. (If you would like data specific to a single neighborhood, please call or email.)

A San Francisco neighborhood and district map is included at the bottom of this report.

Like all value statistics, average dollar per square foot is not a perfect indicator of changes in home values. It can be affected by a variety of factors to create anomalous fluctuations; square footage can be measured different ways; and a fair percentage of home sales do not publish square footage at all, so that the calculations can only be made on those that do.

Very generally speaking, the more affordable house districts in the city (and around the Bay Area) have continued to see significant appreciation in average dollar per square foot values in 2016, while the more expensive neighborhoods have plateaued or even ticked down a little. However, one should not make too much of small percentage changes up or down over the shorter term. Sometimes, one has to allow a trend to develop instead of jumping to dramatic conclusions about where the market is headed based on limited data. 2016 YTD statistics may well change when the last 3 weeks of the year are included in the analysis.

Average Dollar per Square Foot Trends by Realtor District
San Francisco CONDO Sales, 2011-2016 YTD

The condo market has generally softened more than the house market and most of the district condo markets have plateaued in average dollar per square foot values or dropped a little. Much of this has to do with both a cooling in the high-tech boom (lessening demand) and a surge of new-condo projects coming on market (increasing supply). The district with the most significant decline, 5%, has been District 9, a large district encompassing SoMa, South Beach, Mission Bay, Potrero Hill, Dogpatch and Inner Mission: A large majority of SF new-condo construction is occurring in this area, and thus more definitively shifting the supply and demand dynamic.

On these charts, the only district showing a significant increase was District 2, Sunset-Parkside, but there are really too few condo sales in D2 for the data to be statistically reliable. District 7, Pacific Heights-Marina, saw a small percentage increase, but its 2016 average dollar per square foot value was affected by a sizable number of sales of newly-built, ultra-luxury condos, with very high values. If those sales were deleted, D7 would also have seen a small decline.

None of the declines in either house or condo dollar per square foot values yet suggest anything approaching a market crash. So far the changes appear to be moderate adjustments to shifts in the local economy, increasing new construction, and/or affordability issues at the higher end of the market.

Median House Price Trends by Neighborhood

Substantial median house price appreciation has continued in more affordable San Francisco neighborhoods, as illustrated in the first chart below

Looking at the next chart for median house price changes in higher-price neighborhoods, some important caveats apply: First of all, some of these neighborhoods, such as St. Francis Wood, Cole Valley or Inner Richmond, do not see many house sales in any given year. This makes price fluctuations more common without necessarily relating to changes in fair market value. (Do we believe that Inner Richmond houses suddenly appreciated 20% in 2016? No.) In Pacific Heights, the issue is both not that many sales and that the range of MLS sales prices is so huge, from $2,000,000 to $22,000,000 in 2016. This can cause median prices to jump up or down without great meaningfulness: Sometimes, just one or two additional sales can make the median price in a given period change dramatically.

Statistically speaking, the most reliable data in the chart below is for Noe & Eureka Valleys, which have a high number of sales: The median sales price there has basically plateaued from 2015 to 2016.

San Francisco Neighborhood Map
with Realtor Districts Delineated

All our reports can be found here: San Francisco & Bay Area Market Reports

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, and longer term trends are much more meaningful than short-term. It is impossible to know how value statistics apply to any particular home without a specific comparative market analysis.

© 2016 Paragon Real Estate Group

Rising Interest Rates & Bay Area Housing Affordability

Changes in interest rates affect local, national and international economies in a bewildering variety of positive and negative ways depending on the segment, and there is vehement disagreement as to what rate or rate movement is best, or most dangerous, for whom.

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As of Friday, November 18, mortgage interest rates have jumped about 15% since the election, with many economists and analysts predicting more to come in the not too distant future. Federal Reserve Bank Chair Janet Yellen recently suggested that the Fed is close to lifting its benchmark interest rate. However, predicting interest rate changes; what factors might arise to cause movements up or down; as well as the direction, scale and speed of changes; is enormously difficult. Witness the thousands of incorrect expert predictions over the past 10 years. For that matter, rates actually went downafter the Fed last raised rates in December 2015.

This report will focus on a single issue: Increases in interest rates raise the ongoing cost of housing and reduce housing affordability (unless there is a concurrent drop in prices). In the Bay Area, already experiencing significant social and economic ramifications from the high cost of housing at a time of historically low interest rates, this is a big concern, including how it might affect our real estate markets.

The degree of the effect of any interest rate changes will, of course, depend on what actually occurs at what speed, which is beyond our ability to predict. The possible scenarios in this report do not imply any predictions on our part. The first charts below provide some useful context.

Bay Area Home Price & Affordability Trends by County

From 2012 through Q3 2016, Bay Area home prices in most counties soared to new peaks. Affordability percentages dropped dramatically since 2012, but without quite reaching the lows of 2006-2007.

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In this report, affordability is calculated, under the C.A.R. Housing Affordability Index methodology, using 3 main criteria: 1) the county median house sales price, 2) the prevailing mortgage interest rate, and 3) county household income distribution percentages.

Long-Term Interest Rate Movements

The drop in interest rates from 2007, the last peak of market before the 2008 crash, through early November 2016 has been incredible. And the rates prevailing prior to the 2008 crash, in the 6% range, were themselves quite low by prior historical standards. The average annual rate from 1990 through 2007 was 7.4%. Just prior to the recent 2016 election, rates were between 3.5% and 3.6% (with an all-time low of 3.3% hit in 2013). The chart at the top of this report illustrates the sudden post-election pop in rates to 4.125% (11/18/16).

Interest Rate & San Francisco Median Price Changes since 2007

Home prices and interest rates dropped precipitately after the financial markets crisis of September 2008. Once the real estate recovery began in 2012, home prices skyrocketed while interest rates generally continued to bump along at or near all-time lows.

In effect, the big reductions in interest rates subsidized much of the surge in Bay Area home prices: Since the last peak of the market prior to the 2008 crash, to just before the 2016 presidential election, the interest rate for 30-year, conforming, fixed-rate home loans, fell about 43%, from roughly 6.3% to 3.6%.According to the S&P Case-Shiller Home Price Index, overall Bay Area home prices have appreciated approximately 82% since 2012, though, please note, appreciation rates vary widely by specific location and home-price segment. The above chart shows SF median price changes only.

The decline in interest rates was not the only or even the primary factor in the appreciation of Bay Area home prices. The massive increase in employment, much of it high-paid, and the resultant surge in population (without a parallel increase in housing supply), along with the local explosion of new wealth from our high-tech boom, were the primary factors. Still, there is no arguing that plunging interest rates made increasing home prices much more affordable.

These interest rate rise scenarios below do not imply predictions on our part: A top interest rate scenario of 6.3% was chosen simply because that was the rate in 2007, the peak of the last cycle.

Short-Term Interest Rate Movements since December 2015
The same chart that began this report

Post-election increase: Short-term spike
or beginning of a longer-term ascent?

Monthly Housing Cost Scenarios
Illustrated Using the San Francisco Median House Price

Approximate monthly principal, interest, taxes and insurance costs for the purchase of a Q3 2016, median-priced San Francisco house at $1,300,000, using an 80%, 30-year fixed rate loan, at a number of interest rate scenarios.

As seen below, the 15% increase in interest rate from 11/10/16 to 11/18/16 added almost $4000 to the annual housing cost of purchasing a $1,300,000 home. If the rate goes to 4.5%, the increase is about $6700, and if it goes up to 5%, the additional annual cost of housing is over $10,000. Illustrating how declining interest rates help subsidize increasing home prices, the Q3 2016 SF median home price was 45% higher than the previous peak price in 2007, however the increase in monthly housing costs (PITI) was only 14% higher than in 2007 due the big drop in mortgage rates.

Minimum Qualifying Household Income

The below chart tracks approximate household income needed to qualify for the purchase of a Q3 2016, median-priced San Francisco house at $1,300,000, using an 80%, 30-year fixed rate loan, per associated PITI costs, at various interest rates.

As interest rates increase, household income requirements increase. Before the election, buyers needed an approximate income of $251,000 to qualify for financing their purchase of a median priced SF house, with a 20% down-payment. By Friday, November 18, the income requirement increased by $13,000. And if the interest rate goes up to 5% (and again, we are not saying it will), an additional $35,000 in annual income would be required.

Housing Affordability Trends for San Francisco

If housing costs increase, then housing affordability declines. In Q3 2016, the percentage of San Francisco households who could afford to purchase a median priced house, at 14%, was 6 points higher than the all-time low of 8% in Q3 2007. The recent interest rate increase through 11/18/16 drops that another percentage point. If additional rate increases occur, then, all things being equal, San Francisco will continue to move closer to the historic low hit at the peak of the last market cycle. And, of course, the affordability percentages of other Bay Area counties will also drop. (San Francisco, San Mateo and Marin have the 3 lowest percentages in the state, and must be in the running for lowest percentages in the country.)

To what exact degree interest rate changes would affect local real estate markets is unknown. Much would depend on the scale and speed of change as well as other economic trends in the Bay Area – such as high-tech hiring and IPOs coming to market – as well as macro-economic trends in the nation. But it could include a slowing of transaction activity and new construction projects, possible adjustments to home prices, or the continued pushing of buyers from more expensive areas to less expensive ones (including, possibly, those outside the Bay Area). High housing costs are not an easy problem to fix, and increasing interest rates, if they continue, are unlikely to help.
All the statistics and numbers used in this analysis are based on data deemed reliable but should be considered approximations and generalities, most useful in illustrating comparative values and broad trend lines. By definition, half of the homes sold cost less than the median sales price, and greater percentages of households could afford their purchase. Also other property types such as condos are typically significantly less expensive than houses, so they would be more affordable as well. Our gratitude to the California Association of Realtors, and in particular, its analyst Azad Amir-Ghassemi, for all their work on the Housing Affordability Index (HAI). For analyses and scenarios after Q3 2016, the numbers reflect our best estimates based upon our understanding of the CAR HAI methodology, and/or housing cost calculators. None of the interest rate increase scenarios included imply any predictions on our part that such increases will occur. Anyone contemplating purchasing a home with financing should confer with a qualified loan agent and their own financial planners. This report was written in good faith, but may contain errors and is subject to revision.

© 2016 Paragon Real Estate Group

Multiple Angles on a Changing San Francisco Market

Median sales prices usually jump in autumn, to a large degree because of the seasonal increase in luxury home sales, and that is what happened in October. The combined house and condo median sales price was up 6% from October 2015, but substantially unchanged from the previous peak median prices achieved in spring 2015 and spring 2016.

San Francisco Median Home Sales Prices

median-price_combined-sfd-condo_by-month_bar-chart

Median sales prices usually jump in autumn, to a large degree because of the seasonal increase in luxury home sales, and that is what happened in October. The combined house and condo median sales price was up 6% from October 2015, but substantially unchanged from the previous peak median prices achieved in spring 2015 and spring 2016.

Click on the map below to access our updated Bay Area & SF home price maps
bay-area-home-price-map_screenshot_v2

Overview

The six weeks from mid-September to Halloween constitute the heart of the relatively short autumn selling season, with the market typically going into semi-hibernation from Thanksgiving through mid-January. (Sales still occur during this period and it can be an excellent time to buy with the big drop in competition.) Generally speaking, this autumn experienced further cooling in SF market conditions: October saw significant year-over-year declines in accepted-offer and closed-sale activity, and significant increases in price reductions and listings expiring without selling. Condos appear to be most affected on all these counts, with some decline in condo values: This situation is certainly being exacerbated by new condo projects coming on market at the same time that buyer demand has been softening.

The house market has continued to see declines in listing inventory and to shrink as a percentage of total home sales, thus becoming a scarcer commodity. It has performed much better, especially in more affordable neighborhoods. And sales of luxury houses suddenly spiked dramatically in October, though this appears to have been mostly driven by a huge surge in such listings in September. This jump in expensive house sales drove the median house sales price to its highest point ever in October, to just over $1.4 million. The condo median sales price in October, at $1,150,000 was above that of October 2015, but a tad below its all-time high in June. Please note that median sales prices are not perfect measures of changes in fair market value, since they fluctuate for a number of reasons, including seasonality and significant changes in the inventory of homes for sale.

Bay Area Case-Shiller Home Price Index
Recent price changes by property type and price segment

Case-Shiller Index numbers all refer to a January 2000 price of 100, and track appreciation since then. Thus 243 on the chart signifies a price 143% above that of January 2000.

case-shiller_low-mid-high_short-term

As mentioned in earlier reports, the highest pressure of buyer demand has shifted in the past year toward more affordable homes, and that is now showing up in the different price movements of low, middle and high-price tier houses. The Case-Shiller Index does not measure median sales price changes, but has its own special algorithm to determine same-home appreciation. This short-term chart illustrates how lower-priced houses have continued to appreciate rapidly, while mid-price and high-price houses have recently more or less plateaued, and condo prices have declined. The Bay Area Index for August 2016 was published in late October.

Chart: Long-Term, Case-Shiller Bay Area Home Price Trends

Link to our complete S&P Case-Shiller Index report

San Francisco Luxury Home Sales
Houses of $3 million+/ Condos, Co-ops & TICs of $2 million+

luxhome_sfd-3m_condo-etc-2m_sales_by-month

This report will generally consider houses selling for $3m or more, and condos, co-ops and TICs selling for $2m or more, as constituting the luxury home segment in the city. They total just under 10% of total home sales. For the ultra-luxury designation, houses are bumped up to $5m or more, and condos, co-ops and TICs to $3m or more. These price segments total 2.6% of total home sales.

Pursuant to a big jump in new high-end home listings in September, luxury house sales in October, suddenly hit their highest point in many years, if not ever. This is illustrated in the red line in the chart above. Luxury condo sales reported to MLS, as seen in the blue line, were higher than in October 2015, but far below peaks hit in previous spring selling seasons. However, this does not count new-project luxury condo listings unreported to MLS, which are playing an increasingly large role in the market and creating substantial competition for resale luxury-condo listings.

Below are 2 charts breaking out luxury home sales by city district.

lux-house-sales_3m-plus-by-neighborhood

lux-condo-co-op-tic-sales_2m-plus-by-neighborhood

Additional Chart: New high-end listings coming on market

Further Perspective

The past 14 months has seen the Chinese stock market crash, the oil price crash, Brexit, high U.S. financial market volatility, a slowdown in the Bay Area high-tech boom, and enormous election-related anxiety. It is difficult to tell exactly how these events may have affected real estate markets. However, despite significant affordability issues and the transition to less heated market conditions – as illustrated in the analyses of this report – so far, we have seen no sign of anything approaching an impending crash in our local market.

Selected Real Estate Market Statistics
Year-over-year changes by property type and price segment

Listings vs. Sales: The overall inventory of house listings has persisted in declining, while house sales are basically even year-over-year. Condo inventory continues to climb (without including new project condos not listed in MLS), while sales have been dropping.

fs-sold_sfd-condo-etc-yoy-comparison

Percentage of Sales over Asking Price: Condos saw dramatic drops in this metric, illustrating a significant decline in buyer demand and competition. Overall, houses have seen a negligible decline, maintaining a very high percentage of sales over asking price. Luxury houses, as mentioned before, experienced a stronger October market than last year.

over-asking-percentage-of-listings_sfd-condo_lux-reg

Median Percentage of Sales Price over Final List Price: All market segments saw year-over-year drops as buyers refused to overbid list prices on the scale of previous years. However, the general house segment still saw a 9.3% median overbid of list price, which is huge, even considering that some agents are consciously underpricing their listings. The other segments, with overbid percentages shrinking toward zero, are seeing a much greater quantity of sales negotiated below list price. And this does not include the increasing number of listings that are simply expiring, i.e. with no sale taking place.

sp-lp_percentages_sfd-condo_reg-lux_yoy-comp

Sales Price to Original List Price Percentage Overview
All San Francisco residential sales

sp-op_all-sales-combined_by-month-bar_chart

Months Supply of Inventory (MSI): MSI measures how long it would take to sell the current inventory of listings for sale at the average annual rate of sale. All segments ticked up, indicating some market softening, but the general house market is still well within seller market territory. The biggest change is in the luxury condo market, where inventory has been hitting new highs, while sales have generally been declining, thus putting the segment in buyer market territory. Again, these figures do not include the large number of new-project listings and sales unreported to MLS, which would probably increase the condo MSI readings.

msi-yoy-comparison

Average Condo Dollar per Square Foot Values by Era of Construction: Newer condos sell for higher average dollar per square foot values than older condos. Generally speaking, in 2016 there has been a tick down in this measure of value, which, as seen in the chart at the beginning of this report, correlates with the conclusion of the Case-Shiller Index as well. According to The Mark Company, which specializes in the marketing of new-construction condo projects (for which statistics are usually not available), average dollar per square foot values for brand new condos have dropped about 8% over the past year. This would presumably reflect the fierce competition between projects to sell out their inventories of units.

condo_avgdolsqft_by-era-of-construction_2007-present_bar-chart

The two following charts are from our recent report on the Bay Area Apartment Building market, mostly focusing on San Francisco, Alameda and Marin Counties.

Median Sales Prices for Multi-Unit Properties
by building size and submarket

10-16_invest_median-sales-price_2-4_5-15_by-submarket

Average Asking Rents by Bay Area County

avg-asking-rent_bay-area-counties-cities

Rent rates in San Francisco have been dropping in 2016 after peaking in 2015, with estimates of the decline generally running in the range of 3% to 6.5%, but with some city rental agents saying that certain districts have seen slumps of more than 10%. We believe there are 3 big factors at work: a rush of large, newly built apartment buildings coming on market; a softening of demand as hiring trends have fluctuated; and affordability issues that have caused more prospective renters to simply turn away from living in the city, their first choice, and look elsewhere. However, even with the recent decline, the city still has the highest rents in the country.

Link to our full Apartment Building Market report

Link to our full Rent Trends report

Our Best Autumn Ever

We hope you will forgive our celebrating the fact that Paragon, which opened its doors in 2004, represented buyers and sellers in closing more in San Francisco home sales in October than any other brokerage. [Total dollar volume residential sales reported to MLS, per Broker Metrics.]

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 the Bay Area, each with its own unique dynamics. Median prices can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how value statistics apply to any particular home without a specific comparative market analysis.

© 2016 Paragon Real Estate Group

San Francisco’s Hottest, Most Competitive Neighborhood Market

Since the market recovery began in 2012, various districts have taken the lead as the hottest markets in San Francisco: The affluent and prestigious Noe-Eureka-Cole Valleys district and Pacific Heights-Marina district led the recovery out of recession. Later South Beach/SoMa, Hayes Valley and, especially the Mission, went white hot as the high-tech boom surged (though, honestly, high appreciation rates became general throughout the city). In mid-2015, price appreciation in many the more expensive and fashionable districts started to slow down and plateau.

With the search for affordable homes, and houses in particular, becoming ever more challenging (or desperate), the greatest pressure of buyer demand moved to a large, lopsided curve of historically less expensive neighborhoods running along the western-most edge of the city from Outer Richmond south to Lake Merced, then east across the southern border with Daly City, and up through Bernal Heights and Bayview. Of these, we believe Realtor District 2, Sunset/Parkside, with its quiet streets and low crime rates; its closeness to the beach, GG Park and highways south to Silicon Valley; and its attractive, modest-sized houses built mostly in the 1930’s and 1940’s, is now the hottest, most competitive market in San Francisco.

san-francisco-neighborhood-district-map

In the charts below, notice how year-over-year statistics have generally cooled somewhat in most areas of the city from the frenzied market prevailing in the first part of 2015: higher days on market, lower percentages of listings selling over asking price, higher months-supply-of-inventory figures, and so on. The most affordable districts are those generally showing the least, or even no, change year over year, and some of them are still sizzling. However, the 2016 statistics for SF house sales in no way suggest what would be described as a weak market in any of the city’s districts. (Some of the condo markets have cooled more significantly.)

Overbidding Asking Prices: SF House Sales

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Percentage of House Sales Selling over Asking Price

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SF House-Price Appreciation Rates

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Average Days on Market

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Months Supply of Inventory:
Buyer Demand vs. Supply of Listings for Sale

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San Francisco District Condo Markets

For a number of reasons, including a significant increase in new-construction projects, the condo market in San Francisco is not as strong as its house market, but without any hint of an impending crash: The median SF condo price has simply plateaued after years of feverish appreciation. Based upon our analyses of underlying market dynamics shown via the charts below, we believe the condo markets of the Noe, Eureka and Cole Valleys district, and the Richmond/Lake Street district are currently the most dynamic in the city. It is probably no coincidence that these areas are seeing comparatively little new condo construction adding to inventory.

The softening of the condo market is clearly reflected in the 2016 vs. 2015 statistics. The first chart also illustrates, as mentioned in earlier reports, how the luxury condo segment ($2m+), especially in District 9 (greater SoMa/South Beach/ Yerba Buena) where the majority of new, luxury condo construction is occurring, has softened the most. These charts do not include the many hundreds of newly built or under construction condos listed, accepting offers or sold, which are not reported to MLS, as exact data on that activity is hard to verify.

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Chart: Overbidding Condo Prices
Chart: Condo % Sales over List Price
Chart: Condo Average Days on Market


District Sales Overview

Sales Volumes and Sales Prices

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Chart: Average San Francisco House Sizes by Neighborhood

As illustrated above, the 3 most affordable districts for buying a house in San Francisco are also 3 of the 4 districts with the most house sales.

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25 years ago, the greater South Beach/ SoMa/ Mission-Bay area didn’t even have an appreciable amount of residential housing. Now, if we add new-condo sales not reported to MLS (which are not reflected in the chart above), it is the area with the greatest number of condo sales in the city, more than twice as many as the second ranking district. It is also now the foremost area for luxury condo sales, having leapt ahead of the Pacific Heights and Russian Hill districts. This is the only place in the city where high-rise construction is currently allowed, and there is much new construction in the works.

San Francisco Median Home Prices by Quarter
2012 – 2016

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Median sales prices typically fall in Q3 from Q2 due to seasonal inventory and demand issues, and that occurred in 2016 as well. Year over year, the Q3 2016 house price is running somewhat above that of Q3 2015, while the condo median price has stayed essentially flat.

San Francisco Median Home Prices by Year
1993 – 2016

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Biggest Surge in New Luxury Home Listings Ever

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Even more so than the general market, the luxury home market is fiercely seasonal, with spring and autumn being much more active than summer and, especially, the mid-winter holiday doldrums. September is typically the single month with the highest number of new listings, which fuels the relatively short autumn selling season before the luxury market starts to go into hibernation in mid-late November. This year saw a particularly large jump in the number of new listings of homes of $2.5 million and above to by far the highest level ever.

Because the time between listings coming on market, offers being negotiated and accepted, and then the transactions actually closing sale is 4 to 6 weeks or more, it will be a little while before we have hard data on how the market responded to this feast of expensive homes hitting the market.

New Bay Area Hiring Surge?
Employed Resident Count in 4 Central Bay Area Counties

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Hiring and the population growth it engenders play a huge role in buyer and renter demand. After peaking in December 2015, the number of employed residents in the 4 middle Bay Area counties fell by 6000 through June 2016, the largest sustained drop in 5½ years. This seemed to correlate with an apparent cooling in the high-tech boom. Then in July & August 2016, a sudden, new hiring surge added almost 38,000 to the employment numbers, hitting a dramatic new high. We will have to wait for the data of future months to see if this is part of a sustained second wind in Bay Area hiring (especially in high-tech), or simply an unusually large, short-term fluctuation.

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 the Bay Area, each with its own unique dynamics. Median prices can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how median prices apply to any particular home without a specific comparative market analysis.

© 2016 Paragon Real Estate Group

Heading into the Autumn Selling Season

2015 to 2016 YTD, the overall median price for condos, which now comprise the majority of home sales in the city, remained exactly the same at $1,100,000: Among other issues, this market segment is clearly being impacted by an increase in new-project condos coming on market, altering the supply and demand dynamic. The house median price increased 6% to $1,328,000: This is far below the appreciation rates of the previous 4 years and is being driven mostly by continued demand for “more affordable” houses selling below $2 million. TICs, which only comprise 4% to 5% of home sales basically stayed flat year over year.

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Where to Buy a Home in San Francisco for the Money You Wish to Pay

We just issued our semi-annual update on home prices by property type and neighborhood. Below are 3 of the 8 charts in the analysis. The complete report is here: San Francisco Neighborhood Home Prices

26% of SF house sales were under $1 million so far in 2016; In 2011, that percentage was 75%.

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Autumn & the Expected Surge in New Home Listings

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Autumn is the second biggest selling season of the year, and September is typically the single month with the highest number of new listings. Autumn is a relatively short market season, running from after Labor Day until mid-November, when the market begins its slide into its winter-holiday slowdown. It is particularly important for the luxury home segment as its market activity usually plunges to an almost standstill at Thanksgiving and doesn’t revive until February or early March, i.e. this 2-month window is basically it for the next 5 to 6 months.

At this point, we are waiting to see if the expected, dramatic spike in new listings occurs as usual, and how buyers react to it if it does.

Our full report on seasonality is here: Seasonality & the SF Market

After 6-Month Decline in 2016, a Sudden Surge in SF Employment Numbers

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From the middle of 2015, the Bay Area high-tech boom appeared to appreciably cool down in hiring, IPOs coming on market, venture capital flow and general economic optimism, and that was one factor in the cooling in the SF real estate market. (One local economist predicted “blood in the streets” of San Francisco from a crash in both high tech and real estate.) As to hiring, from 2010 through 2015, San Francisco added an astounding 100,000 new jobs (the Bay Area added 600,000), putting enormous pressure on home prices and rents, but then in the first six months of 2016, that trend reversed itself and the number of employed residents in the city dropped by over 3000. Well, whether it is a short-term, seasonal fluctuation will become clearer soon, but in July, the trend line reversed itself again and the number jumped by 9000 to hit a new all-time high, as illustrated in the above chart.

The SF market definitely shifted gears this past year, from ludicrous overdrive (as Tesla might describe it) to a more reasonable cruising speed, and it has become much more balanced between buyers and sellers, but we certainly haven’t seen any blood in the streets so far. One question now is whether the Bay Area high-tech boom is getting something of a second wind. The change in employment trends is one of the indications we are seeing that it might be, hopefully without the irrational exuberance, but it is far too early to come to any definitive conclusion.

Paragon Special Reports on San Francisco and Bay Area Markets & Housing Affordability

In August we issued 2 reports that received extensive media coverage in Bloomberg News & BusinessWeek, WSJ Mansion Global, San Francisco Business Times, KGO, KTVU, KCBS, SFGate, Curbed and others, even some international publications. Below is a sampling of the many analyses in the reports, as well as links to the full articles.

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Full report: Income, Affluence, Poverty & the Cost of Bay Area Housing

Full report: Bay Area Real Estate Markets & Demographics

A Tumultuous Time in Financial Markets
The S&P 500 vs. the Shanghai Composite Index

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We initially created this chart last autumn, and thought it would be interesting to update it for a longer term perspective.

A year ago at the end of August 2015, a very volatile year began for national and international financial markets. Initially triggered by a crash in the Chinese stock market, sparking serious concerns regarding the international economy, the S&P 500 fell significantly, but then recovered completely by mid-autumn. Then the oil price crisis of early 2016 dramatically affected the S&P, but again, it recovered completely within 2 months. When the Brexit vote came in late June, the market barely reacted, and then the S&P soon hit a new all-time high, a little above its previous spring 2015 peak.

Thousands of pundit prognostications later, many predicting crash and doom, U.S. financial markets are basically back to where they were when the Chinese stock market crisis began one year ago.

San Francisco Market
Statistical Overview

By virtually every statistical measure of supply and demand, the SF market cooled in 2016: price appreciation generally plateaued, inventory ticked up and sales ticked down, months supply of inventory and days on market increased, and the percentage of sales price over asking price declined. All the changes have been statistically significant, but, except for the luxury condo market (which has softened more dramatically), none of the recent statistics by themselves indicate what would be typically called a weak market. For example, months supply of inventory increased from an average of 1.7 months in the first 8 months of 2015 to 2.3 in 2016, but 2.3 is still quite low; days on market went up 3 days for houses and 7 days for condos, but the current figures are still not high; the percentage of sales price over asking price decreased by about 4 percentage points in 2016, but condos and houses are still averaging sales prices 3% to 8% over original list price, which would have sellers in most other places jumping up and down in glee.

Perhaps the statistic most indicative of change is that the number of listings expiring or being withdrawn from the market without selling has gone up a whopping 60% (and for luxury condos, up over 100%). This is the clearest sign possible of sellers trying to sell their homes for more money than any buyer is willing to pay.

As always, please remember that the heat of different market segments can vary dramatically by property type, price range and location. The more affordable house market, for example, is still crazy hot in many areas of the city. And more affordable markets outside the city have also generally continued to be very competitive.

These analyses were made in good faith with data from sources deemed reliable, but they 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. Statistics are generalities, longer term trends are much more meaningful than short-term, and we will always know more about what’s actually going on in the present, in the future. New construction condos not listed or sold on MLS are not counted in these statistics, though they often affect market dynamics.

© 2016 Paragon Real Estate Group

Income, Affluence, Poverty & the Cost of Housing: Housing Affordability in the San Francisco Bay Area

The California Association of Realtors just released its Housing Affordability Index (HAI) for the 2nd quarter of 2016, 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: median house price, mortgage interest rates, and household income. (Housing Affordability Index Methodology). The HAI uses house prices exclusively and if condos were included in the calculation, median home prices would decline (in SF, from $1,375,000 to $1,200,000 in Q2), affordability would increase and income requirements and PITI costs would be reduced as well.

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.

Affordability Percentage by Bay Area County

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Long-term Bay Area Housing Affordability Trends

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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 44% 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

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Minimum Qualifying Income to Buy Median Priced House

Assumes 20% downpayment and including principal, interest,
property tax and insurance costs.

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Bay Area Median House Prices

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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

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Marin has the highest median household (HH) income in the Bay Area, a tad above Santa Clara and San Mateo. 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.

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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

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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.

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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

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Interest rates play an enormous role in affordability via ongoing monthly housing costs, and interest rates are close to historic lows, over 40% 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, that rates cannot go much lower. 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.

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Monthly Rental Housing Costs

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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

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Additional Chart: Affordable Housing Construction Trends in San Francisco

There is probably no bigger political 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 groups to developers. It is an extremely complicated and difficult-to-resolve issue, especially exacerbated by 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 affordablemeans in a city with a median home price 5 times the national median. One corollary of increasing affordable housing contribution requirements for developers and extremely high building costs is that developers are concentrating on buildingvery expensive market-rate units – luxury and ultra-luxury condos and apartments – to make up the difference.

Other reports you might find interesting:

Bay Area Home Price Maps

Wealth, Employment, Demand, Inventory, Affordability and San Francisco Home Prices

San Francisco Housing Inventory and New Construction Pipeline

Survey of SF Bay Area Real Estate Markets, August 2016

10 Factors behind the San Francisco Real Estate Market

30+ Years of San Francisco Bay Area Real Estate Cycles

San Francisco Market Overview Analytics

San Francisco Neighborhood Affordability

Our sincere gratitude to Leslie Appleton-Young, VP & Chief 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.

© 2016 Paragon Real Estate Group

Bay Area Real Estate & Demographics

While waiting for the autumn market to begin, we thought we would step back and look at the Bay Area from a variety of angles. If you are tired of reading about real estate, there are some interesting demographic analyses at the bottom of this report.

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Ups & Downs in Bay Area Real Estate Markets
All Bay Area markets saw large surges in home values from 2000 to 2007; all went through significant or even terrible declines after the 2008 financial markets crash, typically hitting bottom in 2011; and all have made dramatic recoveries since. But there are big differences in how these events played out in distinct markets, with 4 main factors behind price changes over the past 16 years:

  • BUBBLE: Generally speaking, the lower price ranges and the less affluent areas saw much bigger, crazier bubbles than other segments, inflated in the years prior to 2007 by predatory lending, subprime loans and the utter abandonment of underwriting standards.
  • CRASH: In 2008-2011 distressed-property sales devastated the lower price segments, which suffered the biggest declines in home prices. When the recovery started in 2012, they began from unnaturally low points, which had little to do with fair market values. Other market segments were affected but to much lesser degrees.
  • PROXIMITY to the high-tech boom: SF and Silicon Valley have been the white-hot hearts of economic expansion. Oakland and the rest of Alameda County were the closest, significantly-more-affordable housing options. Then, as one moves further away, the electrifying effect on home prices gradually lessened.
  • AFFORDABILITY: The more affluent areas led the recovery in 2012-2014, but then the highest pressure of demand started shifting to less expensive, comparatively more outlying neighborhoods, cities and counties. Buyers desperately searched for affordable housing options, or simply wanted more home for the dollar. Now, some of the most expensive markets are beginning to cool, while less expensive ones remain very competitive.

A fifth factor just beginning to impact some markets now (such as the SF condo market) is the significant increase in new home construction, most of which is on the more, or much more, expensive end.

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The chart above illustrates median sales price changes, from 2007, the approximate peak of the bubble, to 2011, the approximate bottom after the crash, to the present, after 4-plus years of recovery. The table below summarizes the percentage changes charted above.

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OAKLAND had a very large subprime bubble, a huge crash, and then a sensational recovery highly pressurized by being just across the bridge from SF (and much more affordable). The Oakland median house price is up a staggering 178% since 2011, partly because it crashed so low. However, because its subprime bubble was so big, it is only 10% above its inflated 2007 price. Alameda County as a whole has experienced much the same market. Other comparatively lower-priced Bay Area markets, such as northern Contra Costa, Solano, Napa and Sonoma, more distant from the high-tech boom, saw similar dynamics, but are still below their 2007 peaks despite substantial recoveries.

Price-change percentages up and down are not created equal: If a price drops 60%, it then has to go up 150% to get back to where it started.

SAN FRANCISCO, more expensive and affluent, had a much smaller bubble and much smaller crash with far fewer distressed property sales (and those mostly concentrated in its least expensive districts). The high-tech boom then supercharged its recovery: Its median house price is up 93% from the bottom hit in 2011 (much less than Oakland), but is 51% higher than its 2007 peak, the biggest increase over the 10 years of any of the markets measured. Silicon Valley has similar statistics, and other high-price markets like Marin and the Lamorinda/Diablo Valley area of Contra Costa County, saw comparable, if somewhat less dramatic, dynamics.

These county market descriptions are gross generalizations, as each county has both very affluent and less affluent communities, with their own unique dynamics.

Additional chart: Bay Area home price trends since 1990
Additional chart: Bay Area dollar per square foot values
Additional chart: Average Bay Area house sizes


Trends in Home Values since 1988

per the S&P Case-Shiller Home Price Index

Instead of looking at different locations in the Bay Area, Case-Shiller analyzes its entire market by low, mid and high-pricetiers, each tier equaling one third of sales. For any Bay Area home, whatever its price in January 2000, Case-Shiller assigns it a value of 100. All other values on the chart below refer to percentages above or below the January 2000 price, i.e. 150 equals 50% price appreciation since that date. Case-Shiller does not use median sales price data, but instead uses its own custom algorithm to reach its conclusions.

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Two things stand out: As mentioned before, different price segments had bubbles, crashes and recoveries of vastly different magnitudes. Secondly, all the price tiers are now roughly the same percentage above their January 2000 prices, each showing about 130% appreciation over the past 16 years.

Note how much higher the peak of the bubble in 2006-2007 was for the low-price tier of homes (light blue line): Prices jumped an incredible 170% from 2000 vs. 119% for the mid-price tier and 84% for the high-price tier. Then came a correspondingly gigantic crash.

Our full report: 30+ Years of San Francisco real estate cycles


San Francisco Home Prices by Neighborhood, Property Type and Bedroom Count
Below is one of 7 tables in our updated breakdown of SF home prices. The full report:
SF Home Values Analysis by Neighborhood
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Selected Bay Area Market Dynamics

A selection of relatively self-explanatory snapshots measuring Bay Area real estate markets. San Francisco dominates the news, but it is a relatively small real estate
market by number of sales.

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Virtually no place else in the country has seen competitive overbidding comparable to the inner core of the Bay Area. (Though some of it is caused by strategic underpricing.)

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Additional chart: Average days on market by county
Additional chart: Median condo sales prices by county
Additional chart: Comparative Bay Area rents
Additional chart: Housing affordability in the Bay Area

 

Selected Demographic Snapshots

A few angles on how the Bay Area is different from other places, and how Bay Area counties differ from one another.

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All Bay Area counties have been growing in population. San Francisco in particular is very densely populated and getting denser.

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In the spirit of the times, a look at Bay Area political party demographics.

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Along with Washington DC and Seattle, the Bay Area ranks among the best educated metro areas in the country.

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The single biggest factor behind strong rent control laws:

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Our most recent region-specific market reports are here:

San Francisco Real Estate Market Reports
Marin County: Market Conditions, Trends & Values
Lamorinda & Diablo Valley: Market Conditions, Trends & Values
Sonoma County Market Report

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 the Bay Area, each with its own unique dynamics. Median prices can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how median prices apply to any particular home without a specific comparative market analysis.

© 2016 Paragon Real Estate Group

Home Value Tables by San Francisco Neighborhood

These tables report median sales prices and average dollar per square foot values, along with average home size and units sold, by property type and bedroom count for a variety of San Francisco neighborhoods. If you are interested in data for a neighborhood not listed, please contact us. The tables follow the map in the following order: houses by bedroom count, condos by bedroom count, and 2-unit building sales. Within each table, the neighborhoods are in order of median sales price.

The analysis is based upon sales reported to San Francisco MLS between January 1, 2016 and July 21, 2016. Value statistics are generalities that are affected by a number of market factors – and sometimes fluctuate without great meaningfulness – so all numbers should be considered approximate. Medians and averages often disguise a huge range of values in the underlying individual sales.

“m” signifies millions of dollars; “k” signifies thousands; N/A means there wasn’t enough data for reliable results.

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Note: The surge in expensive, new-condo construction sales in various areas, such as Hayes Valley, Potrero Hill, Inner Mission and the Market Street and Van Ness Avenue corridors, is significantly affecting (raising) the average and median values in those neighborhoods.

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These statistics apply only to home sales with at least 1 car parking. Homes without parking typically sell at a significant discount. Below Market Rate (BMR) condos were excluded from the analysis.

As noted on the tables, the average size of homes vary widely by neighborhood. Besides affluence, the era and style of construction often play a large role in these size disparities. Some neighborhoods are well known for having “bonus” bedrooms and baths built without permit (often behind the garage). Such additions can add value, but being unpermitted are not reflected in square footage and $/sq.ft. figures.

If a price is followed by a “k” it references thousands of dollars; if followed by an “m”, it signifies millions of dollars. Sales unreported to MLS are not included in this analysis, and where abnormal “outliers” were identified that significantly distorted the statistics, these were deleted as well. N/A signifies that there wasn’t enough reliable data to generate the statistic.

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Selected San Francisco District Snapshots

Illustrating the breakdown of home sales by price segment over a 12-month period.

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Our full selection of district snapshot charts is here: SF District Home Sales by Price Segment

The Median Sales Price is that price at which half the properties sold for more and half for less. It may be affected by “unusual” events or by changes in inventory and buying trends, as well as by changes in value. The median sale price for an area will often conceal a wide variety of sales prices in the underlying individual sales. Every time one adjusts the analysis parameters – by date, or any other criteria – the median sales price will usually change as well. All numbers should be considered approximate.

Dollar per Square Foot is based upon the home’s interior living space and does not include garages, storage, unfinished attics and basements; rooms and apartments built without permit; decks, patios or yards. These figures are typically derived from appraisals or tax records, but can be unreliable, measured in different ways, or unreported altogether: thus consider square footage and $/sq.ft. figures to be very general approximations. Size and $/sq.ft. values were only calculated on listings that provided square footage figures. All things being equal, a house will have a higher dollar per square foot than a condo (because of land value), a condo’s will be higher than a TIC (quality of title), and a TIC’s higher than a multi-unit building’s (quality of use). All things being equal, a smaller home will have a higher $/sq.ft. than a larger one.

Many aspects of value cannot be adequately reflected in general statistics: curb appeal, age, condition, views, amenities, outdoor space, “bonus” rooms, parking, quality of location within the neighborhood, and so forth. Thus, how these statistics apply to any particular home is unknown without a specific comparative market analysis. Data is from sources deemed reliable, but may contain errors and is subject to revision.

These links below can be used to access other real estate reports and articles.

Neighborhood Market Reports *** Information for Buyers *** Information for Sellers

SAN FRANCISCO REALTOR DISTRICTS

District 1 (Northwest): Sea Cliff, Lake Street, Richmond (Inner, Central, Outer), Jordan Park/Laurel Heights, Lone Mountain

District 2 (West): Sunset & Parkside (Inner, Central, Outer), Golden Gate Heights

District 3 (Southwest): Lake Shore, Lakeside, Merced Manor, Merced Heights, Ingleside, Ingleside Heights, Oceanview

District 4 (Central SW): St. Francis Wood, Forest Hill, West Portal, Forest Knolls, Diamond Heights, Midtown Terrace, Miraloma Park, Sunnyside, Balboa Terrace, Ingleside Terrace, Mt. Davidson Manor, Sherwood Forest, Monterey Heights, Westwood Highlands

District 5 (Central): Noe Valley, Eureka Valley/Dolores Heights (Castro, Liberty Hill), Cole Valley, Glen Park, Corona Heights, Clarendon Heights, Ashbury Heights, Buena Vista Park, Haight Ashbury, Duboce Triangle, Twin Peaks, Mission Dolores, Parnassus Heights

District 6 (Central North): Hayes Valley, North of Panhandle (NOPA), Alamo Square, Western Addition, Anza Vista, Lower Pacific Heights

District 7 (North): Pacific Heights, Presidio Heights, Cow Hollow, Marina

District 8 (Northeast): Russian Hill, Nob Hill, Telegraph Hill, North Beach, Financial District, North Waterfront, Downtown, Van Ness/ Civic Center, Tenderloin

District 9 (East): SoMa, South Beach, Mission Bay, Potrero Hill, Dogpatch, Bernal Heights, Inner Mission, Yerba Buena

District 10 (Southeast): Bayview, Bayview Heights, Excelsior, Portola, Visitacion Valley, Silver Terrace, Mission Terrace, Crocker Amazon, Outer Mission

Some Realtor districts contain neighborhoods that are relatively homogeneous in general home values, such as districts 5 and 7, and others contain neighborhoods of wildly different values, such as district 8 which, for example, includes both Russian Hill and the Tenderloin.

© 2016 Paragon Real Estate Group

San Francisco Bay Area Apartment Building Market

Financial markets worldwide have seen dramatic volatility in this past 12 months, the Bay Area economy and new hiring have cooled, and the San Francisco house and condo market started to normalize after 4 feverishly overheated years. From a wide variety of sources, we are hearing of a big jump in apartment vacancy rates, with more apartments for rent than in many years, and the beginning of a decline in rent rates from recent all-time peaks. As would be expected, preliminary indications of a transition to a cooler market appear to be starting to show up in apartment building sales activity, but as illustrated in the charts below, no significant change is yet showing up in the statistics. The second half of 2016 will undoubtedly provide more insight regarding the speed and scale of any changes in market conditions.

Generally speaking, in the analyses below, we break out the 2-4 unit market from the 5+ unit market, as the two have some fundamental differences in market dynamics. The smaller buildings are often purchased by owner-occupiers, or, in San Francisco, by investors planning to sell the units separately as TICs. This significantly changes the financial evaluation of such properties.

This first chart gives an idea of the sizes of the markets in San Francisco, Alameda and Marin Counties.

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Median Sales Price and Dollar per Square Foot Trends
2-4 Unit Buildings: San Francisco, Alameda & Marin

2011 to 2016 YTD

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Cap Rate & Average Dollar per Square Foot Trends
5+ Unit Buildings: San Francisco, Alameda & Marin

2012 to 2016 YTD

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Price per Unit, Gross Rent Multiples, Median Price Trends
5+ Unit Buildings: San Francisco Only

2007 to 2016 YTD

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Further information regarding San Francisco neighborhood submarkets can be found in our last 2 reports: Q1 2016 & 2015 Market Reports

Below is one section of our list of 5+ unit apartment building sales reported to MLS in the first half of 2016. The full list is here: San Francisco Apartment Building Sales

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Inventory, Demand, Price Reductions & Expired Listings
Multi-Unit Apartment Buildings in San Francisco

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As seen in the second chart above, most of the SF multi-unit buildings that closed escrow in the first half of 2016 sold relatively quickly and averaged 5% over the original asking price. Buildings that went through price reductions before selling took much longer and sold at significant discounts. And quite a few listings expired or were withdrawn without selling, a clear indication of a substantial disconnect between what many sellers wanted and what buyers were willing to pay.

San Francisco Housing Inventory & Era of Construction

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San Francisco New Housing Construction Pipeline

One of the big dynamics playing out in both the SF residential home and residential investment markets is the large number of new housing projects that have recently come on market or expected soon. Note that of projects under construction or approved by Planning (and leaving aside the long-term mega-projects such as Treasure Island), rental units outnumber condo (sale) units by about 2 to 1. This is a very recent development in SF housing construction, which saw virtually no market-rate rental housing construction for decades. (See era of construction chart above.) This expected rush of new rentals, most of which are at the (very) high end of rental cost, is coming just as the rental market is clearly softening in the city.

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The chart above is based upon the San Francisco Business Times superb in-depth analysis of the many housing projects, rental and sale, market rate and affordable, currently in the Planning Department new construction pipeline, mapping and describing major projects of 60 units or more. Our chart attempts to summarize some of their data. Please note that projects are constantly being added, revised, sold to new developers, or even abandoned, and the median time from filing a plan to building completion is 3 to 6 years depending on the size of the project. Our full report is here: SF Housing Inventory and Pipeline Report.

Changes in San Francisco Employment Trends

What has been supercharging the Bay Area rental market for the past 5 years has been the incredible increase in new jobs, estimated at over 600,000 in the Bay Area, and 100,000 in San Francisco alone. This has put enormous pressure on rents throughout the metro region (the most expensive in the country) as new hires, many with very well paying jobs, desperately searched for housing. However, since 2016 began, it appears that the trend in new hiring has reversed, just as new rental housing inventory has been hitting the market in quantity: Significantly less demand, extremely high rents and increased supply of apartments for rent is creating a new reality, at least for the time being. The most expensive segment, especially in those areas where new construction is clustered, is probably most affected: Almost all the new, market-rate inventory is concentrated in the highest price ranges.

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Our report on rental market trends is here: Bay Area Rent Report

Broker Performance: Residential Multi-Unit Sales

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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. Properties not listed on or reported to MLS are not counted in these statistics, though they often affect market dynamics. Sales statistics of one month generally reflect offers negotiated 6 to 8 weeks earlier.

© 2016 Paragon Commercial Brokerage