Media Reports Suggest Major Bay Area Decline

The sources of the data behind the below (and many more) articles: an online survey by a PR company; an analysis of traffic on a real estate website; the alleged cost of a U-Haul to Las Vegas; anecdotal opinions from a handful of venture capitalists on a mid-west bus tour; and new U.S. census data, more often than not selectively or misleadingly quoted to sound most ominous. (The WSJ article was by far the most fastidious with using hard data from reliable sources, though it was still alarmist in tone.)

Quotes and headlines from selected media articles in March 2018

[According to a survey] “49 % of Bay Area residents were looking to move out.”
Business Insider

“San Francisco is such a boomtown that people are leaving in droves.”
Wall Street Journal

“Silicon Valley is over” “In the last three months of 2017, San Francisco lost
more residents to outward migration than any other city in the country.” 

New York Times

“San Francisco is so expensive that more people are leaving than moving in
– and it could mean disaster for the nation’s tech capital.” 

SFGate

Bad news, predictions of crashes, the arrogant finally getting their comeuppance: These stories grab eyeballs and get re-posted on social media. And much of the country finds the Bay Area insufferably smug – its wealth, home prices, unicorns, Google buses, 26-year-old billionaires, liberal politics, and much else – and if it is finally getting its just deserts, that is entertaining news. I get that: Sometimes, I find us insufferably smug myself. But let us investigate the issues a bit deeper.

First of all: Without argument, there are big economic and social challenges facing the Bay Area: high housing costs; high state income taxes; recent federal tax law changes; the hostility of the current federal government to foreign immigration; rising income inequality, poverty and homelessness; growing commute times and other quality of life issues; national and international concerns; and, yes, population migration trends too. This was covered in some detail in our recent report Positive & Negative Factors in Bay Area Markets. It is certainly true that places like Austin and Seattle, with much lower housing costs and no state income taxes, are actively luring our businesses to relocate or expand there, and doing so with some significant success.

But, for a much more realistic illustration of what is going on in the Bay Area, here is some hard data from U.S. Census and CA Employment Development Department data released in March:

More people are NOT leaving San Francisco or the Bay Area than arriving. When you tally both domestic migration in and out (to and from other places in the U.S.), and foreign migration, more people are arriving than leaving. It is true than in the past 2 years, domestic net migration has shifted to a net loss, but that deficit is still overcome by the large positive in foreign immigration. Is the shift in domestic migration worrisome? Yes, if it continues to grow. But it is not cataclysmic in its current proportions, and there are further underlying factors to consider, which shall be discussed later in this report.

San Francisco County: Residents Leaving, New Residents Arriving
Net Domestic & Foreign, and Total Net Migration Numbers, per U.S. Census
The last column in each year tallies the net positive migration number

5-County San Francisco Metro Area Migration

The last column in each year tallies the net positive migration number

The Bay Area population is still growing both from migration and natural factors (births less deaths), albeit at slower rates than the torrid pace of previous years. As the WSJ admits in its article, SF and SF metro area populations are not shrinking: The SF Metro area population increased by .6% in the last 12 month period, as measured by the census through 7/1/17, which is one tenth of 1 percent lower than the .7% national rate. And a slower rate of growth than our recent population explosion is not a bad thing, since the Bay Area is bursting at the seams from growth without concomitant improvements in housing supply and infrastructure.

Long-Term Population Trends: San Francisco County

Short-Term Population Changes: 5-County SF Metro Area

The representation by Business Insider that 49% of residents were looking to move out is simply absurd. Really? Every other person? If people were fleeing or planning to flee in the proportions suggested, one would expect every other home in the Bay Area to sport a “for sale” sign, while the percentage of homeowners selling their homes is actually at historic lows: Less than 2% of SF house owners sold their homes in 2017. (The ratio was higher for condo owners, but still low at something over 4%.) I suppose it is possible that in the frenzy to get away, people are simply abandoning their homes instead of selling them.

New Listings Coming on Market: San Francisco County

Bay Area employment growth remains extremely strong. According to the CA Employment Development Department, for the six big Bay Area counties (the 5-county SF metro area plus Santa Clara County), no matter which month of 2017 one looks at, the year-over-year increase in Bay Area employed residents, ranged from 60,000 to 90,000. As the WSJnotes: “The broader Bay Area is the most robust metro region in the nation in terms of payroll job growth, according to the most recent regional analysis from the University of California-Los Angeles Anderson Forecast, an economic forecaster.”

Number of Employed Residents, per EDD
5-County SF Metro Area + Santa Clara County

Some other factors to consider:

Many of the people leaving inner Bay Area counties are moving to adjacent counties, such as Solano, Sonoma, Sacramento, Santa Cruz, San Joaquin, San Benito and Stanislaus Counties. Many of those people almost certainly continue to work within the metro area. To some degree, the Bay Area economic zone is expanding geographically, not declining.

The Bay Area over the past 7 years has been one of the greatest new-wealth creation machines in history. With the recent Dropbox IPO, it seems to be cranking into gear again – and there are still dozens of other local unicorns such as Uber, Pinterest, Airbnb, Palantir, with total values in the hundreds of billions of dollars – that could yet go public. Uber has already stated its desire to do so in the near future.

A substantial portion of those leaving the Bay area are retirees, cashing out on high home prices to move to less expensive locales, such as other counties in California, and Nevada, Arizona and Oregon. This is not a new phenomenon, as it has been going on for decades, though it may have accelerated in recent years, since cashing out has become so much more lucrative.

Most of those coming to the Bay Area are coming for new jobs, and the Bay Area remains a magnet for many of the best and the brightest around the world. Besides which, every year, thousands of Bay Area students graduate from schools like UC Berkeley, UCSF and Stanford, to take jobs locally as well. Economically, the Bay Area is trading many residents who are, to a large degree, checking out of the economy for people in the prime of their working lives.

Millions of square feet of new commercial office space continue to be snapped up as soon as they come on market, even before the buildings are finished, and the only possible reasons are new businesses arriving and existing businesses expanding, both of which are fueled by continued hiring.

The Bay Area certainly has substantial challenges to face and it is not sure it will overcome its problems. And it is true that people and businesses are moving out in greater numbers than any time since 2002. But, on the other hand, start-ups continue to start up by the hundreds, local business continue to expand, and the Bay Area undoubtedly remains one of the most innovative and dynamic economies in the world. And despite all its faults and problems, it is still, in my opinion, one of the great metropolitan areas and best places to live on the planet.

Other reports you might find interesting:

Positive & Negative Factors in Bay Area Markets
Changing California Migration Trends
30+ Years of Bay Area Real Estate Cycles
Survey of Bay Area Real Estate Markets
All Paragon reports can be found here

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.

© 2018 Paragon Real Estate Group

A Selection of Charts about Debt

Most of the charts below come from the Federal Reserve Bank of St. Louis. We have not had time to comment on each chart and what we believe its significance to be (and, in any case, we are probably unqualified to do so), but you might still find them interesting. Increasing debt levels often play an enormous role in financial cycles. In our view, the increasing amounts of debt being taken on within the country and worldwide (both at historic highs) is dangerous, however historically low interest rates have greatly ameliorated the effects. If rates rise significantly, then high levels of debt can easily become economically destabilizing.

The first 2 charts look at short- and long-term mortgage interest rate trends because they massively influence the financial effect of debt.The third is on consumer confidence, because increasing confidence often leads to taking on higher levels of debt, and “irrational exuberance” often leads to taking on untenable levels of debt. Then the report dives into national, corporate and household debt statistics.

Mortgage Interest Rates
Short-Term Trends

Long-Term Trends

Consumer Confidence

National Debt

U.S. Corporate Debt

Investor (Margin) Debt

Household Debt Statistics

Household Debt Statistics for Selected States

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.

© 2018 Paragon Real Estate Group

Long-Term Trends in San Francisco Real Estate

The great advantage of reviewing annual data is how often the market trend lines clarify into a straightforward dynamic, instead of the constant up and down fluctuations often seen in monthly or quarterly data charts. (Monthly data is constantly being abused by the media, when proper context is not given.) It is similar to standing back to look at a broad view of terrain as opposed to focusing on the one small piece that is right in front of your shoe.

Among other advantages, annual trend lines track greater amounts of data, which usually adds to reliability, and also avoid the fluctuating effects of seasonality on real estate markets. However, we also have dozens of charts that look at monthly and quarterly data, sometimes specifically to illustrate seasonality, but those analyses are in other reports.

All our Bay Area real estate market analyses can be found here: Paragon Reports

Median Price Changes
A Selection of Angles & Presentations

We have many more annual appreciation charts on individual San Francisco neighborhoods and Bay Area cities, which can be found here: Paragon Market Statistics & Analysis

S&P Case-Shiller Bay Area Home Price Index Trends

Case-Shiller does not use median prices to determine appreciation, but instead uses its own proprietary algorithm. The numbers on Case-Shiller charts refer to home prices when compared to a January 2000 home price of 100. Thus if at some point after 2000, the chart number is 150, that signifies 50% home price appreciation since January 2000. Case-Shiller uses a 5-county metro area in its San Francisco analyses. Needless to say, this includes a huge variety of different housing markets.

We probably have 10 charts illustrating Case-Shiller data. This one below breaks out appreciation and depreciation trends by price segment, dividing the market into thirds by number of sales. The reason why this is particularly important recently is that during the subprime bubble and the resulting crash, different price segments had bubbles, crashes and recoveries of hugely different magnitudes, mostly depending on how they were affected by subprime financing, foreclosures and distressed property sales.

Our full report: S&P Case-Shiller Index for SF Metro Area

 

Inventory & Sales Trends

Housing Affordability Trends

Our full report: Bay Area Housing Affordability

 

Luxury Home Market Sales Trends

Our full report is here: San Francisco Luxury Home Market Report

 

Mortgage Interest Rate Trends

Annual General Market Dynamics Trends

Looking at annual trends of a variety major real estate market measures, one is struck by how the different analyses reflect virtually the exact same market dynamics over the past 6 or 7 years, heating up as the market came out of the recession, and then cooling or plateauing in 2016 after market heat peaked in 2015. When multiple statistics line up like this, the data is considered much more meaningful and reliable. However, remember that the San Francisco and Bay Area markets are made up of many distinct segments, and it’s not unusual for the trends in specific segments (prices, locations, property types) to, at times, go in different directions at varying speeds.

Depending on the statistic, a trend line moving up might signify either a market heating up or one cooling down, and vice versa.

Residential Multi-Unit Median Price Trends

Our complete report: San Francisco Bay Area Apartment Building Report

 

Other Economic or Demographic Trends

Selected Factors behind the Real Estate Market

Annual Sales Volume Trends

Much more information can be found on our main reports page:

Paragon Market Statistics & Analysis
Using, Understanding and Evaluating Real Estate Statistics  

It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis, which we are happy to provide upon request.

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.

© 2018 Paragon Real Estate Group

No Let Up in SF Real Estate Market – a Paragon Report

So far in 2018, the market seems to have brushed aside any concerns about increasing home prices, rising interest rates, and new federal tax law changes. It is still very early in the year to come to definitive conclusions about where the year is going, but right now, in most market segments, buyer demand is competing ferociously for a limited supply of listings. This is especially true in the more affordable home segments, and particularly for house listings. The situation is somewhat more complicated in the highest price ranges, especially in the luxury condo segment where supply has been rapidly increasing. Of course, whatever the property type or price segment, it all ultimately depends on the specific property, and its location, appeal, preparation, marketing and pricing.

As an example of what is going on so far in 2018, our dollar volume SF home sales here at Paragon is up 38% for January and February as compared to last year, though admittedly we are outperforming the general market, which is still up by 8% (per Broker Metrics for MLS sales).

San Francisco Median Home Price Appreciation
Year-over-Year Comparisons since 2005

San Francisco year over year median home price appreciation

San Francisco Price per Sq.Ft. Appreciation
Year-over-Year Comparisons since 2005

San Francisco Average Dollar per Square Foot Appreciation

These first two charts above compare year-over-year median and average home values for the same 3-month period, December through February, since 2005. For the past 3 years, appreciation for houses has dramatically outpaced that for condos. This is mostly a factor of supply as new-construction condos have poured onto the market, while the supply of house listings has continued to dwindle in the face of high demand.

We are not enthusiastic about monthly median price movements since they tend to bounce around without great meaningfulness due to a number of factors, and sales volumes are very low in the first 2 months of the year, but, for what it is worth, the SF median house price soared to a new high in February 2018 to $1,715,000 (100 sales across 70-odd neighborhoods, reported to MLS by 3/7/18 – late reported sales may affect this price). Monthly median condo prices have generally been jogging up and down within a relatively narrow range since 2015. Chart: Chart: SF Monthly House & Condo Median Sales Prices

Appreciation by San Francisco District
by Year since 2004

The next 2 charts glance at house value appreciation in a few major districts around the city, from most affordable to more expensive to most expensive. As mentioned before, houses in more affordable neighborhoods have seen the most competitive market dynamic, and most consistent appreciation, in recent years.

It can be challenging to measure appreciation in the most expensive price segments, because, firstly, there are not that many sales, and secondly, because of the huge range of sales prices within those segments ($3m to $30m for luxury houses in SF; $2m to $22m for condos and co-ops), but it may well be that their values have mostly plateaued since 2015, or in some instances, ticked down. This can be seen in the second chart below with average dollar per square foot values declining a little in the most expensive house district in the city, Pacific Heights-Marina. But, again, it all depends on the specific property, its location and circumstances.

Median House Sales Prices by District

Average Price per Square Foot House Values

Pacific Heights -Noe Valley- Sunset Average Dollar per Square Foot

We have hundreds of other analyses on San Francisco neighborhood house and condo prices and appreciation trends: SF Neighborhood Values & SF Neighborhood Appreciation Trends.

Or simply contact us regarding the neighborhoods you are specifically interested in.

San Francisco Luxury Home Market

Luxury home sales started off very strong in 2018, but the supply and demand dynamics are softer than in the general market. In the ultra-luxury condo market, in those neighborhoods where new, high-price condo construction is concentrated, supply is now outpacing demand. We just did a massive update of our luxury home analysis and it can be found in its entirety here: Paragon Luxury Market Report.

Below are a few samples of charts in the complete report.

Year-over-Year Sales Comparisons
First 6 Weeks of the Year

San Francisco Luxury Home Sales 2018 YTD

Active Luxury House Listings by District

San Francisco Luxury House Listings

SF Luxury House Sales by Era of Construction

San Francisco Luxury House Sales - Era of Construction

Active Luxury Condo & Co-op Listings by District

San Francisco Luxury Condo Listings

Supply & Demand: Ultra-Luxury Condos & Co-ops

San Francisco Ultra-luxury condo market

Long-Term Trends in Inventory

Only about 2% of house owners are putting their homes on the market each year, which is incredibly low by historical measures. About 5% of condo owners sell their homes each year, plus the new-construction condos that come on the market. This dynamic has made houses into the scarce commodity, and has fueled dramatic house price appreciation.

New Listings Coming on Market
Long-Term Trends

Active Listings on Market at End of Month
Long-Term Trends

Short-Term Trends: Seasonality

We are just heading now into the biggest sales season of the year, running from March through mid-June. The real estate market in the city is significantly affected by seasonality, and the luxury segment is even more fiercely affected. We shall also see if rising interest rates (if they continue to rise) or the changes in the federal tax law start to have any significant dampening effects on demand.

Listings Accepting Offers (Going into Contract)
General Market

New Listings Coming on Market
Luxury Home Market

Selected Supply & Demand Statistics

The following charts illustrate 3 of the classic indicators of market heat, and all of them speak to the feverish real estate market we have seen so far in 2018. However, the market is clearly hottest in the non-luxury price segment, and cooler in the highest price ranges, which is illustrated in the fourth chart below.

Average Days on Market
Year-over-Year Comparisons

Percentage of Listings Accepting Offers
by Month

Months Supply of Inventory (MSI)
Year-over-Year Comparisons

Months Supply of Inventory (MSI)
by Property Type & Price Segment

The market is softer in the highest price ranges especially for the most expensive condos

Average $/Sq.Ft. Value by House Size

All things being equal, house size and price per square foot go in opposite directions, i.e. a smaller house will sell for a lower sales price but a higher dollar per square foot value. This has to do with land value and the cost of systems, kitchens and baths. This is why, comparing two periods of time, it is possible that median sales prices can go up while dollar per square foot values go down, or there is a significant mismatch in the appreciation rates – the average size of the houses sold significantly changed between the periods, which happens sometimes. The charts below are of 2 districts with both a good number of sales and relatively homogenous values within the district.

In both the cases below, the difference in price per square foot between smaller houses and the largest houses runs about $200, or about a 15% to 20% difference.

The above effect does not always apply: For example, in Pacific Heights, the biggest houses are also often in the most prestigious locations with the best views, and so command a premium in price per square foot despite their size. And this often does not apply to condo sales, because bigger units are often built higher up in the building, with more expensive finishes, delivering better (or staggering) views, and thus selling for higher $/sq.ft. values.

Rising Mortgage Interest Rates
Short-Term Trends

Long-Term Trends

Long-Term Mortgage Interest Rate Trends

Debt in America

One of the macro-economic factors of concern is that debt levels, of virtually every kind, are hitting new highs in the country (and in the world). This has been heavily subsidized by the historically low interest rates prevailing in recent years, but rates appear to be headed upward, and increasing debt often plays a big role in market cycles.

Debt Taken On to Invest in Financial Markets
(Often a Sign of Investor Over-Exuberance)

Household Non-Housing Debt
Credit Cards, Student Loans, Car Financing

Household Mortgage Debt Service Ratio

The amount of total mortgage debt in the country is now about the same as at its last peak in 2008 (not illustrated on this chart), but because of the plunge in interest rates since then, the ratio of mortgage debt service to disposable income was close to an all-time low in mid-2017. Interest rates have been rising since then, but are still about 30% lower than in 2007. The good news is that so much of mortgage debt in America is now in fixed-rate loans at very low interest rates, which adds much stability to economic conditions, a stability grievously lacking at the time of the 2008 financial markets crash.

Link to additional charts on debt

Additional reading for those interested:

Paragon Main Real Estate Reports Page
Positive & Negative Factors in Bay Area Markets
Survey of Bay Area Real Estate Markets
San Francisco & Bay Area Demographics

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

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis. In real estate, the devil is always in the details.

These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term. Late-reported MLS activity may change 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 December 2017 Index was published at the end of February 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 approximately $685,000 
Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery and has just recently popped a tad above 2006-07 peak values. Currently appreciating more quickly than other price tiers.

Mid-Price Tier Homes: Approx. $685,000 to $1,100,000

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: Approx. $1,100,000+
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

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