San Francisco September Newsletter

September is typically the single month with the highest number of new listings coming on market in San Francisco, a big spike in inventory which fuels the relatively short autumn selling season. Very early indications are that this September may be a very big new-listing month, and how buyers react to the flood of new inventory will provide more clarity as to where the market may be heading next. That data will start becoming available in October.

Long-Term Trends in Median Sales Prices
& Average Dollar per Square Foot Values

These first two charts look at appreciation trends in median prices and average $/sq.ft. values since 2005. The short-term fluctuations in the lines are normal, typically seasonal effects of no great meaningfulness.

As of August 2018, the 3-month rolling median sales prices are as follows: $1,620,000 for houses, $1,200,000 for condos, and $1,125,000 for TICs.

San Francisco Home Sales
by Price Segment

Houses selling for less than $1 million are becoming an endangered species in SF, limited to small homes and/or fixer-uppers in the most affordable neighborhoods. Condos and TICs now dominate sales under $1.5 million.

Four Standard Statistics of Supply & Demand
Year-over-Year Comparisons since 2011
These 2 charts below compare the June-August periods for the last 8 years. These statistics have been moving in parallel during this period, which make them more trustworthy as true indications of market trends.

As illustrated in the first chart, the inventory of listings available to purchase continues to be constrained, and the overbidding percentages, especially for houses, remain at insane levels (though part of this has to do with a strategy of under-pricing by many listing agents).

Home Value Appreciation by City District
Since 2015

Coming out of the long, post-crash housing recession in 2012, homes all over the city began appreciating very rapidly, led at first by the most expensive neighborhoods, and this lasted through mid-late 2015. Then, in the last 4 months of 2015, financial markets went into a period of extended volatility and unease (Chinese stock market and oil price crashes, Brexit and election anxieties), which ran through the 2016 election. At the same time hiring in high-tech temporarily slowed and high-tech IPO activity ground to a halt. New condo construction in the city also soared, changing the supply and demand dynamic for that property type. These factors had significant effects on the luxury home and condo segments.

Since 2015, appreciation of houses has far outpaced that of condos, and homes in more affordable areas have appreciated much faster than in more expensive neighborhoods. The lower the home prices, the higher the appreciation rates. However, virtually all segments saw a dramatic surge of demand in late 2017 through spring 2018, propelling values quickly higher.

House Values: More Expensive Districts

Though the median house sales price in the very expensive Pacific Heights-Marina district has not increased in the past 3 years – in fact, it has seen a small overall decline – it is worth noting that from the beginning of 2012 to the end of 2015, it appreciated by a whopping 87%.

Partial year data should be considered preliminary until full year results are available in January.

House Values: More Affordable Districts
In these neighborhoods, large bursts of appreciation have been common in recent years, as the pressure of buyer demand shifted to a search for affordability.

Condo Values: More Expensive Districts
As with houses, the most expensive neighborhoods for condos have seen limited or no appreciation in median sales prices since 2015.

Values in Other Major Condo Districts
The large South Beach-SoMa-Mission-Potrero Hill-Dogpatch district has been ground zero for the greatest number of large new-condo projects coming on market. That led to a drop in median sales price in 2016, but in 2018, prices jumped dramatically in all 3 districts illustrated below.

San Francisco New Housing Pipeline
The number of units somewhere along the line in the SF Planning Department new housing pipeline hit almost 70,000 in Q2 2018, however developers face increasing challenges in land and constructions costs, reportedly the second highest in the nation, as well as issues pertaining to affordable housing requirements, neighborhood activism, possible increases in rent control measures, and the lengthy review and approvals process. The outlook in new housing construction can shift very quickly if economic conditions change.

Projects of 20-Plus Units under Construction
The main areas for new home construction – of both condos and apartments – are the greater South Beach-SoMa-Potrero Hill district, and the Market Street and Van Ness Avenue corridors. These are the areas where large, previously commercial-use lots can be used for building large projects, and where zoning often allows for much taller buildings.

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis.

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.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

© 2018 Compass

San Francisco Real Estate Market Report

We are pleased to announce that Paragon Real Estate has joined forces with Compass in order to deliver a new level of support and service for our clients. Founded in 2012, Compass is a real estate technology company now operating in 30 regions with over 90 offices across the United States, including New York City, San Francisco, Los Angeles, Chicago, Boston, Seattle, Washington D.C., Dallas and Miami. With the merger, the Compass Bay Area team consists of more than 500 agents closing more than $4.5 billion in annual sales volume.

While we wait for the autumn selling season to begin in September, this report will take a look at SF and Bay Area market trends from a variety of angles, starting with home prices.

Market Seasonality & the Autumn Selling Season

Inventory and demand ebb and flow dramatically in the SF market, as illustrated by the two charts below. The spring selling season is the most active overall, a period in the Bay Area that can stretch from late February to mid-June. The market then slows down for the mid-summer holidays. Autumn is the second major selling season, but is much shorter, running from after Labor Day to early-mid November. Activity then plunges for the mid-winter holidays. Because of this dynamic, September is usually the single month with the greatest number of new listings coming on the market, providing buyers with the widest choice of homes until spring rolls around again. The luxury home market is even more fiercely seasonal than the general market, which will be discussed later in this report.

The September surge in listings (first chart) leads to an
October surge of listings going into contract (second chart).

Housing Affordability

The California Association of Realtors just released its Q2 report on housing affordability, which we have illustrated in the 2 charts below. The numbers tie into the county median home prices delineated in the chart near the top of this report.

The Luxury Home Market

Bay Area Sales by County

With the continued growth of high-tech – exemplified by rapidly expanding companies such as Apple, Google and Facebook – Santa Clara and San Mateo now dominate Bay Area luxury home sales. Santa Clara has the biggest population in the Bay Area and the 2 counties combined have 3 times the population of the city of San Francisco. San Francisco is the only county that has a substantial luxury condo market, which adds a different dynamic to the mix.

Luxury Market Seasonality

As mentioned earlier, the luxury segment is fiercely seasonal in its supply and demand ups and downs. This next chart measures the number of new listings coming on market by month. It is not unusual for luxury house sales to peak in October, fueled by the rush of new inventory in September. On the other hand, luxury condo sales typically peak in May or June, feeding off the spring rush of new listings. The high-end market generally crashes in activity from before Thanksgiving through January, so the short autumn period is considered the last major window for sales until early next spring.

The Ultra-Luxury Home Market in San Francisco

The highest end of the high-end market consists of house sales of $5m+, and condo and co-op sales of $3m+. These sales constitute about 2.5% of SF home sales. There has been a big surge in luxury and ultra-luxury condo construction in recent years, providing the basis for increasing sales, while ultra-luxury house sales have mostly plateaued in recent years (very little new construction). Many new-project condo sales are not reported to MLS, upon which this next chart is based.

Luxury Condo Sales in the Greater South Beach District

Generally speaking, the SF luxury home market cooled significantly in mid-2015 due to a number of economic events (Chinese stock market crash, oil price crash, Brexit, big drop in IPO activity and high-tech hiring, presidential election fears), before picking up again in 2017. The luxury condo market in the greater South Beach district, running south from the Financial District and Market Street, was hammered by these events plus a number of other factors, which are delineated on the below chart. After peaking in 2015, sales volume (as reported to MLS) suddenly dropped almost 50%: Agents sometimes reported no one showing up for open houses.

Then in 2017, a recovery began that has now brought sales back up to a dramatic new peak. (Sales not reported to MLS would further increase recent sales volumes.) One of the big dynamics in this district is the competition between newly built, luxury condo listings and resale listings. Whether new or resale, almost all of these properties are in gorgeous, high-service, high-rise buildings, often with staggering views.

3 Classic Measures of Market Heat
Longer-Term Trends

Average Days on Market

As the market get hotter, listings sell faster.

Percentage of Listings Selling over List Price

The entire market has been very strong – these percentages are staggeringly high – but the house market is hotter than that for condos and TICs due to supply issues. The very small co-op market in SF is dominated by very expensive listings, and the luxury market is almost always softer than more affordable segments: The pool of buyers for the highest priced homes is clearly much, much smaller. And, frankly, luxury home listings are more prone to overpricing, which drastically affects response.

Months Supply of Inventory (MSI)

The stronger the buyer demand as compared to the supply of listings available to purchase, the lower the MSI. Generally speaking, MSI figures around the Bay Area have been flirting with historic lows in 2018.

Mortgage Interest Rates
Short-Term and Long-Term Trends

Two of the factors that have worried market analysts have been the big changes in federal tax law limiting the deductibility of state and local taxes, and interest rate expenses – changes that affect more affluent, higher home cost areas like ours most dramatically – and increasing interest rates. So far in 2018, buyers appear to have shrugged off any such concerns, and dollar-appreciation rates have actually accelerated since the beginning of the year.

Interest rates play a big role in housing affordability, and their plunge after the 2008 crash played a vital part in the market recovery of the past 6 years. It has typically been very difficult to predict interest rate changes with any accuracy, though most economists believe they are headed higher. The questions being: If so, how high? And how will buyers react?

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis.

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.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

© 2018 Compass

Seasonality: How Market Dynamics Change by Season

Seasonality typically affects inventory levels, buyer demand and median home prices, often in very significant ways – as is illustrated in the following charts. However, it is not the only factor affecting market conditions and trends – general economic conditions and financial market movements, new construction projects coming on market, significant changes in interest rates, local stock market IPOs, natural and political events, and other factors can and do impact the market as well, sometimes quite suddenly.

It is also worth noting that new listings and new sales occur every month of the year – and sometimes, depending on prevailing market conditions and the specific property, buying or selling during the slower periods of the year can be the smart strategy. For buyers in particular, though the supply of active listings is somewhat lower during mid-late summer and mid-winter market slowdowns, and the number of new listings dwindles, the competition for homes is much lower as well. There are many more price reductions and increased seller willingness to negotiate list prices. The result is that buyers can sometimes make the best deals during these periods: Many of the charts below illustrate this opportunity.

Because of the significant summer and winter slowdowns, it is difficult to come to definitive conclusions about the direction of the market during July/August, and December/January. One really has to wait for the autumn market to begin in mid-September with the typical surge of new listings, or the spring market to begin in late February/ early March to get a sense of where the market may be heading next.

The devil’s always in the details, and the details of the market change constantly. Still, there is a typical and dramatic ebb and flow to the level of activity in the market that correlate with seasonality, and that is what this report explores from a variety of angles.

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

Fluctuations in median sales prices are not unusual and these fluctuations can occur for other reasons besides changes in value, such as seasonality; inventory available to purchase; availability of financing; changes in buyer profile; and changes in the distressed and luxury segments. How these statistics apply to any particular property is unknown without a specific comparative market analysis. All data from sources deemed reliable, but may contain errors and is subject to revision.

© 2018 Paragon Real Estate Group

SF Multi-Unit Residential Income Market

The Multi-Unit Residential Property Markets
of San Francisco, Alameda & Marin Counties

This report generally separates out the 2-4 unit and the 5+ unit apartment building markets, since they typically have different dynamics and values. All the statistics below are broad generalities covering a wide variety of buildings of very different location, size, quality, condition, tenant profile, income and income potential. Some of the charts pertain to multiple counties, while later in the report, we drill down on supply and demand statistics specific to San Francisco. Note that some of the analyses track the last 12 months of sales, while others have a final data point reflecting only 2018 YTD sales.

As a political update, Proposition F passed in San Francisco, providing city tenants facing eviction proceedings – for any reason – the right to taxpayer-funded legal representation.

According to an analysis by Socketsite, the SF Accessory Dwelling Unit (ADU) program has so far resulted in 691 permit applications to add 1,244 such units to existing buildings. However, only 179 permits for 306 ADUs have so far been issued, and only 28 ADUs have been completed. 90 permit applications for 151 ADUs were filed in Q1 2018. There has been talk of the Planning Department simplifying the process and easing the requirements for the construction of ADUs, since current regulations have clearly been counter-productive to the goals of the program.

Bay Area Residential Rents

San Francisco Commercial Rents
Not so long ago, there were worries that a glut in new office buildings would hit market putting downward pressure on office rents, but every new building has had its space snapped up by major high-tech companies. This is pertinent to the apartment rental business since all those office buildings being leased are presumably going to be filled with additional, well-paid employees, maintaining pressure on apartment rents. This will help balance new apartment buildings coming on market as will be discussed later in this report.

Additional Chart: Median List Rent per Square Foot

Sales, Values & Trends by County & SF District

5+ Unit Buildings

2-4 Unit Buildings

San Francisco Market Overview Trends

Sales, Values & Statistics by Submarket
from our Q1 2018 report

Building Cranes Everywhere

Approximately 68,000 housing units are now in the SF new construction pipeline. Consistent with the trends in recent years, the percentage of rental units under construction is higher than for those units intended as condo sales.

Just because a project is in the pipeline does not guarantee it will be built as planned. Plans are constantly being added, changed and abandoned. New housing construction is extremely sensitive to changes in economic conditions.


Q2 2018 Sales of San Francisco 5+ Unit
Apartment Buildings
San Francisco is a unique residential-investment market: the buildings are smaller and older than in most places, built in a wide range of architectural styles. The great majority of the market is under rent control, which makes upside rental-income potential a big component of valuation, even if it is unknown when that potential might be realized. Furthermore, the units are typically unlike those in suburban garden-apartment complexes, and within the city the variety in buildings and units is enormous.

In real estate, the devil is always in the details: If you are interested in further insight into the details of any of the above sales, or regarding properties currently on the market, please contact me.

 

Broker Performance in
Residential Multi-Unit Property Sales

According to Broker Metrics, which crunches MLS sales data, of the largest brokerages in San Francisco for multi-unit residential property sales, Paragon ranks first for highest sales volume (in both 2+ and 5+ unit building sales). Paragon represents both many more buyers and many more sellers in successfully completed transactions. We also do significant amounts of business in surrounding Bay Area counties.


Link to our latest report on the SF residential homes market
All Paragon market reports can be found here


It is impossible to know how median and average value statistics apply to any particular apartment building without a specific, tailored, comparative market analysis, which can be provided upon request.

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: This is especially true for multi-unit properties, with the enormous range of property types, sizes, conditions, circumstances, qualities, financial data and locations. We are often dependent upon listing agents for income and expense details, which can be of varying accuracy. A percentage of investment property sales are not reported to MLS, which sometimes limits our ability for more comprehensive data analysis. All numbers to be considered approximate.

© 2018 Paragon Commercial Brokerage

2018 YTD: A Wild Ride for San Francisco Real Estate

By any measure, the heat of the San Francisco market in the first half of 2018 has been among the most blistering ever. Probably only 3 or 4 other periods over the past 50 years have seen a comparable intensity of buyer demand vis a vis the supply of listing inventory available to purchase. This despite both significant increases in interest rates and changes in federal tax law severely limiting the deductibility of mortgage interest and property tax costs. As mentioned before, the market is particularly ferocious in the lower and middle-price segments of house sales.

Annual Dollar Value Appreciation

Appreciation is typically viewed through the lens of percentage changes, but looking at the actual increase in dollars paid for a median priced home is perhaps more visceral. These two charts below measure dollar increases in annual median sales prices for houses and then condos. The last columns in each chart measure 2018 YTD median sales price increases against the 2017 median sales price. (The links illustrate the traditional percentage changes.)

Comparing the first half of 2018 to 2017, the median house sales price in San Francisco increased by an astounding $205,000 (per sales reported by 7/3/18). For condos, the increase was also very substantial, at about $71,000.

Link to PERCENTAGE rate appreciation chart: SF houses

Link to PERCENTAGE rate appreciation chart: SF condos

It is not a given that the second half of the year will see home price appreciation at similar rates: Prices could increase further, or they might plateau or even tick down instead. (As can be seen above, home prices can go down as well as up, though longer term trends have always been positive.) For the last 7 years, spring has typically been the most feverish selling season of the year and has often provided most of the appreciation occurring in the full year.

Median sales prices are often affected by other factors besides changes in fair
market value, such as changes in inventory, new home sales or luxury home sales.

San Francisco Home Price Map

We just updated our interactive map of median house and condo sales prices for the 70-odd San Francisco neighborhoods, reflecting the last 12 months sales reported to MLS, which can be accessed by clicking on the map above, or through this link: What Costs How Much Where in San Francisco.

Market Dynamics Statistics

The decline in new listings, especially of houses, has been
a critical factor in the upward pressure on prices.

As houses have become the scarce resource in the SF market,
overbidding percentages have gone into the stratosphere (though
strategic underpricing has also played a role).

New lows in average days-on-market since the 2012 recovery began:
Listings have been snapped up faster than at any time in the past 7 years.

Market activity typically starts slowing significantly in July
before spiking up again in the short autumn selling season.

San Francisco Luxury Home Sales
as reported to MLS

The second quarter of 2018 saw the highest quarterly number of SF homes selling for $2 million and above: When late-reported sales are entered into MLS, we expect the total to be over 320 for the 3-month period, far exceeding the previous high of 267 sales in Q2 2017. However, looking at higher-priced sales of $3m+, Q2 2018 is just a handful of transactions ahead of the Q2 2015 total of 97.

The luxury home market is even more intensely seasonal
in its dynamics than the general market.

Luxury condo sales in San Francisco hit a new high in May 2018.
(Sales reported to MLS: new project sales would increase these numbers.)

For the last few years, luxury house sales have more often peaked in October.

Neighborhood Home Prices & Trends

Below are a few of the many new charts and tables from our updated report on neighborhood sales and values (What Costs How Much Where in San Francisco).

Home Price Tables by Bedroom Count

Where Best to Look in Your Price Range

District Overview Appreciation Trends

Median sales price appreciation in the four biggest districts for house sales by quantity of sales. (Note: districts contain a multitude of neighborhoods.)

Median price appreciation for 2-bedroom condos and co-ops
in the 5 biggest condo-sales districts by number of sales.

If you would like to see home prices or appreciation trends for a city district
or neighborhood not included above, please let us know. We cover them all.

The San Francisco Building Boom

Approximately 68,000 housing units are now in the SF new construction pipeline. Virtually all of them are apartments or condos: New house construction is minimal in the city, and has been so for over 50 years. Condos, new and resale, are now the dominant property type in market sales volume.

Just because a project is in the pipeline does not guarantee it will be built as planned. Plans are constantly being added, changed and abandoned. New housing construction is extremely sensitive to changes in economic conditions.

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

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.

Median sales prices may change as late-reported sales are entered into MLS. Typically, such changes are not material to the overall trends illustrated.

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