2017 Results Are In (And They Are Spectacular) – Paragon’s Real Estate Recap of 2017

The median SF house sales price in 2017 was $1,420,000 (up from $1,325,000 in 2016), and for condos, it was $1,150,000 (up from $1,095,000). Looking just at the 4th quarter, median prices were $1,500,000 for houses (up from $1,350,000 in Q4 2016) and $1,185,000 for condos (up from $1,078,000) respectively.

Additional chart: Bay Area Median Home Price Trends by County

The chart below, based on S&P Case-Shiller Index data, tracks general price appreciation trends of homes in the upper third of prices in the 5-county SF Metro Area. Case-Shiller does not base their calculations on median sales price changes but uses its own proprietary algorithm. This chart has been simplified to only reflect percentage increases and decreases from various points in real estate cycles. Since it covers 5 counties, it is a very generalized illustration.

Link to our full report on the Case-Shiller Home Price Index

Link to our report on SF Bay Area real estate cycles

Moving into 2018, there are a lot of spinning plates in the air – local, state, national and international factors that could affect markets. 2017 saw real estate markets surge and financial markets soar. After some cooling from mid-2015 to mid-2016, the Bay Area high-tech economy surged back into high speed, with companies leasing enormous spaces in newly built office buildings – which they will presumably fill with new hires. Unemployment rates have flirted with historic lows, and 2018 may see some major local IPOs, which could create great quantities of new wealth. The Bay Area still has probably the most dynamic, innovation-fueled economy in the world and indisputably remains among the great metro areas on the planet – but there are also significant social, economic, political and environmental challenges looming.

Congress delivered an unpleasant holiday present to many Bay Area residents in the form of federal tax law changes limiting the deductibility of mortgage interest and state and local taxes. The effect of these changes make living in an already high cost-of-living area more costly for many residents, and also reduce some of the financial incentives of homeownership, especially for more expensive homes. Predictions on the effect of these tax changes on local housing markets and the business environment range from one extreme (economic devastation) to the other (shrug), and the state legislature is currently working on bills that might blunt the negative financial impacts. It is too early to guess how it will all play out. We live in interesting times.

This January 2018 report will range far and wide looking at real estate, and some economic and demographic issues that impact it. Most of the charts are self-explanatory, so we have kept the text to a minimum. A review of annual, year-over-year, real estate market trends in San Francisco are at the end of this report.

Link to our report on market seasonality

Link to our analysis of domestic and foreign migration trends

Link to our new survey of SF & Bay Area demographics

Link to our report on economic context factors

Link to our report on Bay Area housing affordability

Link to our report on the apartment building market

 San Francisco Luxury Homes Market

SF Home Prices by Neighborhood

Annual Market Trends

Most of these annual trend charts show the market heating up again in 2017 after some cooling in 2016. Very generally speaking, since 2015, the house market has been hotter than the condo market, and the more affordable neighborhoods hotter than the more expensive. But 2017 was a strong year across virtually all market segments.

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

Information on neighborhoods not included in this report is readily available.

If you will forgive a little celebration on our part: In 2017, Paragon became the largest brokerage in San Francisco by dollar volume sales of residential and multi-unit residential real estate (as reported to MLS, per Broker Metrics). We opened our doors in 2004.

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 certain statistics to some small degree.

© 2018 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 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 October 2017 Index was published at the end of December 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 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 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. All 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 $1,087,500 (in October 2017). We don’t always adjust these figures in every monthly chart.

Low-Price Tier Homes: Under $676,000 as of 10/17 
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: $676,000 to $1,087,500 as of 10/17

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 $1,087,500 as of 10/17

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.

All data from sources deemed reliable, but may contain errors and is subject to revision. Statistics are generalities and how they apply to any specific property is unknown. Short-term fluctuations are less meaningful than longer term trends. All numbers should be considered approximate.

© 2015-2018 Paragon Real Estate Group