San Francisco Early Autumn Market Report

Due mostly to seasonal issues, median sales prices typically drop in Q3 from Q2 peaks, and did so this year as well. The median SF house price was up 15% and the median condo price was up 4% from Q3 2017. The other Bay Area counties also saw substantial year-over-year increases in median home sales prices in Q3 2018.

New Listings & Price Reductions
September is always a big month for new listings coming on market in San Francisco – typically with the highest number of the year – and this year they jumped 28% higher than in September 2017 to hit their highest point in years.

The number of price reductions in September also increased: 37% over 2017 and 18% over 2016. October is usually one of the two biggest months of the year for price reductions as sellers of unsold listings make a last attempt to grab the attention of buyers before the mid-winter slowdown begins in mid-November.

The number of active listings on the market on a given day in September was somewhat higher than last year, but a bit lower than in September 2016.

What will tell us most about where the market is heading is how buyers respond to these new listings and price reductions, and that information won’t be available until autumn’s listings have time to accept offers, and accepted offers have time to close escrow – in quantity – to give us their data. October is usually a very big month for sales in San Francisco as buyers jump on the surge of listings.

Bay Area Statistics by County

Jumps in listings and price reductions have been common around the Bay Area, and in some counties, the changes are much more pronounced than in SF: Sonoma saw a 122% increase in price reductions amid an active inventory of listings 90% higher than in September of last year. Santa Clara County saw staggering increases, but much of that is due to the fact that inventory was incredibly, abnormally low last year, when Santa Clara was perhaps the hottest real estate market in the country.

Days on Market, Overbidding &
Months Supply of Inventory

So far, we are not seeing significant shifts in these 3 standard measurements of market heat.

Price Tables by Neighborhood & Bedroom Count

Below are selected excerpts from 10 pages of tables breaking down SF home sales over the past 12 months. If a field is left blank, it signifies that there weren’t enough sales for statistical analysis; if a price is asterisked, it means there were only 3 or 4 sales in the period. We are happy to provide the full collection of tables upon request.

House Sales

Condo Sales

The Luxury Home Market

As with the general market, September is typically a very important month for new luxury home listings and October a big month for sales. For the past 3 years, October has been the biggest month of the year for luxury house sales of $3m+. Even more so than the general market, the luxury market goes into a precipitous slowdown from just before Thanksgiving to mid-late January.

It is impossible to know how median and average value statistics apply to any particular home without a specific 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

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

The big political issue facing the market is CA Prop 10, which, if passed in November, repeals the limits on local rent control laws enacted in the Costa-Hawkins Rental Housing Act. This would almost certainly have negative ramifications for owners of multi-unit residential properties in San Francisco and Oakland. The CA Legislative Analyst Office does a good job summarizing the issues: Prop 10 Review. Prop 10 is currently creating something of a shadow on the larger apartment building market, with some buyers waiting for election results – much as happened with SF Prop G did in 2014. (Prop G failed and the market rallied dramatically after Election Day.) However, the market certainly did not grind to a halt in Q3, nor did values plunge.

Historically speaking, it has been difficult for rent control measures to pass on a statewide basis, because homeowners, all of whom are potential landlords, outnumber tenants in California. On this issue, people tend to vote their financial interests, and homeowners generally vote in higher percentages than tenants. Strong rent-control measures are generally found only in tenant-majority communities. All of which is not to take for granted what will occur on November 6.

This report generally separates out the 2-4 unit and the 5+ unit apartment building markets, since they have different dynamics and values. All the statistics herein are broad generalities covering a wide variety of buildings of very different location, age, size, quality, condition, tenant profile, income and income potential. The number of sales in many of the segments is relatively small, which can make the statistics more prone to anomalous fluctuations.

Some charts pertain to multiple counties, and others drill down on statistics specific to San Francisco; some track the last 12 months of sales, and others have a final data point reflecting 2018 YTD sales. All numbers should be considered good-faith, general approximations.

Trends in Residential Rents

This chart below tracks longer-term average asking rent trends, instead of median asking rent appreciation since 2012, as illustrated in the charts above. It provides a bit more historical context.

Sales, Prices & Market Trends

2-4 Unit Buildings

5+ Unit Buildings: Inventory, Sales & Values

The inventory of active listings ticked up in the last 2 quarters.

SF 5+ Unit Buildings: Trends in Gross Rent Multiple,
Cap Rate & Dollar per Unit Value

Many of the standard value parameters have remained remarkably
consistent in San Francisco over recent years.

San Francisco New Construction Pipeline

Almost 70,000 housing units are now in the SF new construction pipeline. Plans are constantly being added, revised and abandoned, and new housing construction is extremely sensitive to changes in economic conditions.

Q3 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. 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

In the summer of 2018, Paragon and Pacific Union merged into Compass to create the largest residential investment property brokerage in San Francisco.

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

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 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

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

Bay Area Market Survey: From Billionaires in Mansions to Flippers & Fixer-Uppers

From Billionaires in Mansions
to Flippers & Fixer Uppers

Market Prices, Conditions & Trends
in the San Francisco Bay Area

73,000 Bay Area home sales worth $76 billion
were reported to MLS over the past 12 months

Comparative home values, fantastic appreciation rates, costly luxury
home markets, housing affordability, economic and demographic
influences, seasonality, poverty & other market conditions and trends

June 2018 Report

The county and city appreciation percentages in the chart above were calculated by averaging changes in both median sales prices and average dollar per square foot values. We also incorporated S&P Case-Shiller SF metro area calculations based upon its algorithm breaking the market into thirds by price segment. Each city and county includes within itself a wide variety of individual real estate markets of different price segments and varying dynamics, so these percentages are broad generalities. It is impossible to know how they apply to any particular home without a specific comparative market analysis.

IMPORTANT NOTE: As with stock market (or bitcoin) performance, comparative appreciation rates in housing markets vary wildly depending on the exact start and end dates of the analysis.

Bay Area Home Value Appreciation Rates
since 2011 (the post-crash bottom of the market)

Bay Area Median Home Price Trends
since 1990

Major Factors in Bay Area Appreciation

The appreciation rate and market dynamics of each individual Bay Area market since 2011 has each been affected by a mix of different factors – to greater or lesser degrees:

1) Being at the center of the high-tech boom (San Francisco, San Mateo, Santa Clara); 2) proximity to the central counties, but with significantly lower housing costs (Alameda County and especially Oakland are prime examples): 3) being affected to an outsized degree by subprime financing and the 2008-2011 distressed-property price crash (Oakland and many outlying, less expensive areas); 4) relative affordability: in recent years, as home prices soared, the highest pressure of buyer demand moved to less costly markets within and between counties; 5) substantially increased supply due to new construction (SF condo market); 6) increases in the average size of homes sold (+13% in SF); and 6) the general national economic recovery: U.S. home prices have appreciated by about 49% since hitting bottom in 2011.

This chart illustrates the dynamics of the enormous appreciation rate in Oakland since 2011, following its drastic crash in prices during the market recession: Chart: Oakland median price changes. And this chart based on Case-Shiller data illuminates the vast differences in the magnitude of bubbles, crashes and recoveries of different home price tiers: Chart: Appreciation Trends by Price Segment.

Generally speaking, the most affluent neighborhoods, with the most expensive homes, have appreciated less on a percentage basis (but more on a dollar-increase basis) than more affordable neighborhoods – especially over the past 2-3 years. This dynamic also occurred in the latter period of the last housing boom.

There were sometimes specific local factors, such as the terrible fires in Sonoma, or the opening of the new Apple spaceship headquarters, which played roles in boosting home prices in their locales.

Bay Area Average Price per Square Foot Values

San Francisco County Median Price Trends
since 1993

Within SF, appreciation rates have diverged between houses
and condos due to classic supply and demand factors.

Many more analyses specific to San Francisco County and its neighborhood markets can be found here: San Francisco Market Report

Bay Area Median Condo Prices by County
Year-over-year changes

Condos are the distinctly more affordable home purchase option, though that is less true in San Francisco than in other counties. Indeed, overall in the city, condos sell at higher price per square foot values than houses, but, of course, average condo size is much less.

The high-tech boom has led to a considerable divergence between Bay Area and national home price appreciation rates, as illustrated in this graph based on Case-Shiller data: Long-Term Home Price Appreciation Trends

Fixer-Uppers: Median Sales Prices

Bay Area Luxury Home Markets

There are very expensive neighborhoods and enclaves throughout the Bay Area, but the fabulous creation new wealth has supercharged Silicon Valley high-end real estate sales above all others.

How much luxury home one gets for the money varies considerably between counties. On a dollar per square foot basis, the highest values are found in San Francisco luxury condos, often high-rise units with utterly spectacular views.

Bay Area Real Estate Market Dynamics

Sales by Price Segment

These next 2 charts break out house and condo sales in the 9-county Bay Area by price segment. (We roughly estimate another 10 to 12% of such home sales were not reported to MLS, and not included below.)

Respective Market Sizes

By unit sales volume, the Bay Area is utterly dominated
by Santa Clara, Alameda & Contra Costa Counties.

San Francisco & San Mateo close the gap in dollar
volume sales due to their high home prices.

The above chart tracks dollar volume sales for houses, duets, condos, co-ops, TICs and 2-4 unit residential buildings. If the sales of larger multi-unit residential buildings and commercial buildings were included, sales volumes would soar for some counties. For example, in San Francisco, 74% of all transfer taxes collected in 2017 related to property sales of $10m+, the vast majority of which were larger apartment buildings and commercial properties.

Home and Lot Sizes

As the economy recovered from the recession, people began to buy larger houses, which is one factor in increasing median home sales prices. The average size of houses sold in San Francisco increased 13% over the period, but is still far below those in Marin, and in Diablo Valley & Lamorinda in Central Contra Costa County.

Marin & Diablo Valley also have the largest median lot sizes.

Homeownership & Tenant-Occupancy Percentages

Of the 9 Bay Area counties, only San Francisco has a higher percentage of renters than of homeowners (though certain cities of other counties do as well).

On the issue of rent and eviction controls, people have a tendency to vote their own financial interests (and not according to their opinions on macro-economic housing-supply theory): Tenants for controls, and landlords and homeowners (potential landlords) generally against them. This is why strong rent control measures are typically found only in CA cities with majority tenant populations, such as SF, Oakland, Berkeley and Santa Monica. Upwardly spiraling rents, as illustrated in the below chart, has made this one of the most intense political issues of the day, to be voted on at the ballot in November.

Bay Area Rent Trends

The Bay Area has the highest rents of any metro area in the nation.

Supply, Demand & Market Seasonality

Most Bay Area markets will now start to transition from the more heated spring sales season to the less active summer season. Part of this dynamic is a marked increase in price reductions. Seasonal trends do vary by county: Sonoma, for example, has a strong second-home market which can peak in mid-summer. San Francisco and Marin typically see dramatic spikes in sales during the short autumn selling season. All markets head into big slowdowns for the mid-winter holidays, before waking up and beginning the cycle again in the new year.

Price Reductions

As the spring market ends, the major period
for listings reducing their asking prices begins.

Bay Area Population & Housing Statistics

Our report on local demographics is here: San Francisco & Bay Area Demographics. We guarantee you will learn surprising and interesting things you never knew before.

Bay Area Housing Statistics

In recent years, some counties have embraced growth in housing supply, and others have resisted it. For better or worse, no county has resisted growth more than Marin. Any way you slice it, housing supply has not come close to keeping pace with the surge in population, a major factor in our real estate markets.

According to a recent report by Turner & Townsend, San Francisco has the second highest construction costs in the world, behind only New York, and these costs continue to accelerate due to a number of factors: land and labor costs; the long planning, approval & permitting process; political opposition to growth; and affordable housing requirements.

Income, Poverty & Housing Affordability

According to the above calculations by the CA Association of Realtors, Bay Area median household income has increased by 23% since 2015, as compared to a 7% national increase (as calculated by Seeking Alpha). Among other factors, it has been reported that people moving into the Bay Area earn considerably more than those moving out.

The Bay Area high-tech boom has been one of the greatest new-wealth-creation machines in history, but many residents have not shared in its benefits, or, indeed, been negatively affected by its impact on housing costs. The Bay Area ranks third for its number of billionaires (after NYC and Hong Kong, according to Wealth-X), but, on the other hand, over a million local residents live in poverty (according to the Public Policy Institute of California). We have one of the great luxury home markets in the country, and one of the worst problems with homelessness.

Q1 2018 Housing Affordability Statistics
per the California Association of Realtors (CAR)

According to CAR, despite very significant increases in median home prices and interest rates, affordability rates ticked up a little year-over-year in most Bay Area counties due to increases in household incomes. This surprises us, but we have not been able to review all the underlying data employed in the CAR Index. CAR has not yet been able to incorporate the recent federal tax law changes into their calculations, which would presumably lower affordability rates due to new limits on the deductibility of state and local taxes (such as property taxes) and mortgage interest costs. Depending on specific financial circumstances, our, admittedly unqualified, back-of-the-envelope estimate is that this will probably mean the loss of tens of thousands of dollars in federal income tax deductions for someone, say, owning a San Francisco house at the current median sales price. (Get more qualified counsel from your accountant.)

According to National Association of Realtors calculations, the San Jose and San Francisco metro areas are the least affordable in the country, just a bit below Honolulu.

Mortgage Interest Rate Trends

Interest rates play a large role in ongoing housing costs (for those who do not pay all cash). They have risen appreciably in 2018, but so far that only seems to be motivating buyers to act more quickly before rates go higher. Still, at some point, if rates continue to rise, presumably there would be some negative impact on the market. Though considerably above the historic lows of recent years, rates are still very low by long-term standards.

Bay Area Employment Trends

One of the foundation stones of the current Bay Area economy and housing market has been the spectacular increase in employment over the last 7 years, often in extremely compensated jobs: It recently came out that the median salary at Facebook was $240,000. (On the other hand, Mark Zuckerberg made a salary of just one dollar in 2017: Hopefully, he has other sources of income.)

As with all economic trends, employment numbers can also decline suddenly and precipitately, as occurred after the dotcom bubble burst. Note: We are not making comparisons between the two high-tech booms.

Additional reading for those interested:

Report: Positive & Negative Factors in Bay Area Markets
Will the Last Person Leaving Please Turn Out the Lights
30+ Years of Bay Area Real Estate Cycles

All our reports and articles can be found here: Market Analysis & Trends

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 or general appreciation rates apply to any particular home without a specific comparative market analysis. All numbers in this report are to be considered approximate.

© 2018 Paragon Real Estate Group

SF Residential Newsletter: Hottest SF Neighborhood Markets

Before discussing neighborhood values, appreciation rates and market cycles, here are 3 overview charts on the entire city market.

Citywide Home Values & Trends

On a 3-month-rolling basis, median home sales prices in San Francisco yet again hit new highs in April 2018: The median house sales price jumped $55,000 over the March price to hit $1,665,000, and the median condo sales price jumped $50,000 in April to $1,225,000 (3-month rolling sales through 4/30/18, reported by May 2). Those reflect year-over-year increases of 23% and 8% respectively. Average dollar per square foot values also reached new peak values.

Highest Median House Price Appreciation Rates by Neighborhood:
Compound Annual Appreciation Percentages, 2011 – 2017

The neighborhoods and districts circled on the map below have seen compound annual appreciation rates of 12% or more over the past 6 years. As a point of comparison, the national rate over that period was about 7%, and the CPI inflation rate about 1.5%. As illustrated in the table below the map, the highest rate in San Francisco over the period was above 18%.

If the return on cash investment was calculated for purchasing with a 20% down payment (instead of paying all cash), and adjusting for closing costs (estimated at 2% on buy-side, 7% on sell side), the compound annual rate of return on the cash investment soars: A 10% annual rate of home price appreciation would then translate into an annual compound return on cash investment of just under 40%. The use of financing in home ownership is one of the reasons why it can often be such a good investment to develop household wealth over time.

Total 6-year appreciation rates can be calculated by dividing the 2017
median house sales price by the 2011 price.

Though median home price appreciation rates throughout the city have been incredibly high by any reasonable measure, some neighborhoods have outpaced the norm. The main reason is affordability: Less expensive homes have appreciated considerably faster than more expensive homes. Also, some of the most affordable districts were hammered by foreclosure sales after the 2008 crash, which brought their sales prices down to unnatural lows by 2011 – setting the stage for dramatic recoveries. Bayview, with the most affordable houses in SF and also worst hit by the 2008-2011 distressed property crisis, has had the highest compound annual appreciation rate since that time, a staggering 18.3%, or a 6-year total rate of 174%. Other affordable neighborhoods running across the southern border of the city – such as Excelsior, Visitacion Valley, Sunnyside, Ingleside and Oceanview – also saw extremely high annual rates of 12% to 14% for similar reasons.

The dynamic in the Inner Mission was somewhat different: Its 14.7% compound annual rate of appreciation – a total of 128% over the 6 years – was because it turned into the hottest, hippest district in the city, especially among younger high-tech workers. The gentrification which had been slowly occurring for 30 years suddenly went into overdrive to catapult prices higher.

Bernal Heights – with a 13.3% compound annual rate and 111% 6-year total – is right next to the Mission on one side and to Noe Valley on another. It was perfectly situated to take advantage of the classic overflow effect for people who wanted a similar neighborhood ambiance to Noe or Eureka Valley, but could no longer afford their much higher prices. Outer Richmond was also a standout: It has the lowest house prices in the northern third of the city. And the Sunset & Parkside district is filled with mid-price 2 and 3 bedroom houses, has a variety of attractive neighborhood commercial districts, ocean or parks on 3 sides, and easy access to highways south to the peninsula. All these factors have made it into a much sought-after location to purchase a home in recent years. The market there is insanely hot now.

The most expensive neighborhoods in the city have lower, but still very high rates of appreciation. And in dollar terms, their appreciation returns are by far the highest in the city.

CONDOS: Calculating appreciation rates for SF neighborhood condo prices is an iffier process, because so many large, new condo projects have come on market, significantly impacting inventory and sales prices, and making it much more difficult to perform apples to apples comparisons. Therefore, our calculations, above and below, are performed for the entire city instead of for separate districts. It is certainly true that, due to supply and demand issues, condos have typically appreciated at somewhat lesser rates than houses, which have become the scarce commodity in SF. There has been some variation in condo appreciation rates depending on location, supply and price segment.


Up, Down, Up: A Longer-Term Look
at SF Home Value Changes since 2000

Bubble, Crash & Recovery
by District & Price Segment

Home value appreciation in the charts below is broken down by 4 distinct time periods: 1) 2000 to peak of bubble (2006-2008, depending on price segment); 2) peak of bubble to bottom of market (typically 2011); 3) the 1st 4 years of the recovery, 2012 to 2015; and 4) 2015 to present.

House appreciation is broken down into 4 broad price segments as exemplified by the markets in 4 city regions: The least expensive segment is represented by house sales in the broad swathe of southern neighborhoods running from Bayview through Portola, Excelsior, Crocker Amazon and Outer Mission (Realtor district 10). The mid-price segment is illustrated by sales in the Sunset & Parkside district (Realtor district 2). The central Noe, Eureka & Cole Valleys district (district 5) is used to represent the expensive segment; and the very expensive house segment is illustrated by the northern, old-prestige neighborhoods running from Sea Cliff, Lake Street & Jordan Park through Pacific & Presidio Heights, Cow Hollow and Marina to Russian, Nob & Telegraph Hills (which are the very affluent parts of 3 different Realtor districts).

These areas were used because of their quantity of sales and the relative homogeneity of values within them. For condos, appreciation rates were calculated on the entire SF condo market. The calculations below were made by averaging both median sales price and average dollar per square foot appreciation rates. Present values are based on sales occurring in Q4 2017 and Q1 2018.

2000 to Peak of Bubble,
Crash to Bottom of Market

Less expensive homes saw by far the biggest bubbles (2000 to 2006-2008) and crashes (2008-2011), mostly due to the predatory lending/ subprime financing crisis. This was a phenomenon across Bay Area markets. (Note that different price segments peaked in different years from 2006 to mid-2008.)

Bottom of Market to 2015,
2015 to Present

The first 4 years of the recovery which began in 2012 saw high home-price appreciation rates across the city. In 2015, the market shifted – there was considerable financial market volatility in late 2015 and the first half of 2016, a precipitous drop in IPO activity, and the high-tech boom cooled temporarily – and appreciation rates diverged, with less expensive homes significantly outpacing more expensive neighborhoods. One factor was that buyers were desperately searching for homes they could still afford.

Overall Dollar & Percentage Appreciation
2000 to Present

By total percentage appreciation since 2000, Sunset/Parkside ranks first. By actual dollar appreciation, the most expensive home prices increased the most, typically by well into seven figures.

San Francisco Condo Appreciation
2000 to Present, All Districts

Generally speaking, the SF condo market has not seen appreciation rates as high as for houses. Mostly, this has to do with increasing supply due to the boom in new condo construction, but it was also affected by factors in 2015-2016 already described above.

Percentage of Sales over List Price
by Property Type

This chart illustrates the difference in demand by property type.
Houses have been the hottest segment in recent years.

San Francisco New-Housing Trends

New construction, projects authorized, and affordable housing figures
based on SF Planning Department data recently released for 2017

Additional reading for those interested: Paragon Main Reports Page

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 such as median sales prices, to some small degree.

© 2018 Paragon Real Estate Group

Yet Another Dramatic Jump in San Francisco Median House Price to over $1,600,000

Consumer confidence is still soaring, and buyers continue to push aside concerns about recent financial market volatility, federal tax law changes affecting Bay Area homeowners, and interest rate increases, to fuel heated neighborhood markets throughout San Francisco.

Houses have become the scarce commodity in San Francisco: Few new houses are built in the city anymore, and house owners are selling less frequently than ever. In Q1 2018, the SF median house sales price soared almost 24% above the Q1 2017 price of $1,300,000, and over $100,000 above the recent peak in Q4 2017. Neighborhoods with house prices under $1.5 to $2m are, in particular, experiencing frenzied buyer demand. Median condo sales prices also continue to increase on a year-over-year basis, but at slower rates due to the significant quantities of new-construction condos coming on market.

Median Sales Price Changes by Quarter
since 2012

Median sales prices often fluctuate by quarter or season. Longer-term trends are more meaningful than short-term changes.

Longer-Term Median Sales Price Changes
since 2005, 12-Month Rolling Figures

12-month-rolling median sales price figures will always be behind the curve during periods of rapid appreciation, but are excellent for illustrating long-term trends, as they reduce the effects of large, anomalous or seasonal fluctuations.

Long-Term Home Price Trends
Bay Area vs. National Appreciation since 1987
per CoreLogic S&P Case-Shiller Home Price Index

The Case-Shiller Index does not use median sales prices to measure appreciation, but instead employs its own algorithm. This chart compares the national home price appreciation trend with that for high-price-tier houses in the 5-county SF Metro Area. The high price tier applies best to most of the markets in San Francisco, Central-Southern Marin, San Mateo, and Diablo Valley & Lamorinda.

In this chart, home prices in January 2000 are designated at a value of 100, thus the reading of 248 in December 2017 signifies a price that has appreciated 148% in the 18 years since then. Notice how similar the national and Bay Area trend lines are, with appreciable variations occurring after the 1989 earthquake, during the dotcom bubble and crash, and during the most recent Bay Area high tech boom.

As always, market dynamics often vary significantly by specific location, property type and price segment, and median prices are often affected by other factors besides changes in fair market value (such as fluctuations in luxury home and new construction sales, and in the average size of homes sold). Late reported sales may affect the median sales prices illustrated in the quarterly chart, though typically only to a minor degree.

A condensed version of our report on the ups and downs in the market over recent decades: SF Bay Area Real Estate Cycles

Overbidding Asking Prices in San Francisco
Sales Price to List Price % by Property Type, 12-Month Rolling Figures

Overbidding reflects buyer competition for new listings. It is a pure supply and demand issue, and this chart illustrates the respective heat of property-type markets in the city. However it should be noted that some agents have adopted a strategy of underpricing their listings, which will artificially increase overbidding percentages.

San Francisco Median Sales Prices by Neighborhood
Reflecting Sales Reported to MLS 10/1/17 – 4/5/18
Neighborhoods with a Minimum of 12 Sales in Period
(except Presidio Heights)

Below is a glance at recent house and condo median sales prices broken out by neighborhood for sales reported to MLS in the last 6 months or so – basically since autumn sales began to close. There are many SF neighborhoods that did not have at least 12 sales during the period and these were not included, because the fewer the sales, the less reliable the statistical analysis. The only exception was Presidio Heights: It holds the title for both highest house and condo median sales prices, so we included it even though it had only 11 sales of each property type.

Note: In recent years, the Pacific Heights median house sales price has typically been running close to $6m, far above its price in the table below. But median prices can fluctuate dramatically in the most expensive neighborhoods: This is due to the relatively small number of sales and the enormous range in individual sales prices. Absent some definitive market event, sudden, abnormal spikes up or down in neighborhood values should always be taken with a grain of salt until confirmed over the longer term.

There are 10 Realtor districts and 70-odd neighborhoods in the city, and here is a link to a detailed San Francisco Neighborhood Map.

If you would like information on a neighborhood not included here, please let us know.

The Facts Regarding Bay Area
Migration, Population & Employment Trends
Alarmist Media Reports Forecast Doom for Bay Area

Many semi-hysterical articles were published in March regarding Bay Area residents fleeing in droves, that more people are leaving than arriving, that Silicon Valley is over, and this may spell disaster for the region. Wow, that sounds very bad – but is not true: Though the rate of growth has considerably slowed from the torrid pace of recent years – which is probably a good thing, since the Bay Area is now bursting at the seams – more people are still arriving than leaving, and population and employment numbers are still increasing. Our report, Will the Last Person Leaving the Bay Area Please Turn Off the Lights covers this topic in much greater detail.

Here are 3 of the charts from our full article, based on recent U.S. census and CA state employment data.

Net domestic and foreign migration in and out of the SF Metro Area,
natural population increases and annual net population growth.

San Francisco & Bay Area populations continued to increase in 2017,
though slowing from the feverish growth rates of previous years.

The Bay Area continues to be a high-paying-job-creating machine,
though hiring intermittently speeds up or slows down.

Again, our full report is here: Will the Last Person Leaving the Bay Area Please Turn Off the Lights

San Francisco Luxury Home Sales Trends
since 2005

More analyses: Paragon Luxury Market Report

SF New Housing Construction Pipeline

There are approximately 65,000 housing units in the SF Planning Department pipeline, which includes condos, apartments, and affordable and social project housing in various states of plan submittal, review, approval, permit issuance and construction. The construction of new rental units continues to outpace new-condo construction in San Francisco, an interesting shift which just began a couple years ago. More projects continue to enter the pipeline, but some of the really big projects, such as Treasure Island and Candlestick, do not seem to be making much headway toward breaking ground.

Mortgage Interest Rates

Interest rate changes are one of many factors we reviewed in a recent report Positive & Negative Factors in Bay Area Markets. It may be that fears of impending rate increases are helping to fuel the strong buyer demand we are seeing so far in 2018.

MEDIAN List Rents by County
Short-Term Trends since 2011

Additional reading for those interested:

Residential Income Property Market Report

Paragon Main Reports Page

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

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 Luxury Home Market Report

After cooling somewhat in late 2015 and 2016, the San Francisco luxury home market bounced back in 2017 to hit new highs in the number of sales.

Note: Our report online contains several dozen updated analyses of the San Francisco luxury and ultra-luxury house and condo markets, of which this newsletter contains a relatively small sample. The full report is here: Paragon SF Luxury Home Report.

Increasing Sales Volumes
in 2017 and in 2018 YTD

Lux-SFD-3m_Condo-etc-1850_Sales_12-Month-Rolling.jpgLuxHome_YoY_Sales-Comp_first-6-weeks_since-2013.jpg

So far in 2018, SF luxury home sales have been quite strong, higher than in any previous year since the recovery began in 2012. The recent stock market volatility notwithstanding, the economic confidence that has been sweeping the nation is also showing up in our luxury home markets. For example, as of February 16th, the sales of condos, co-ops and TICs at prices of $2m and above has jumped 55% in the city, year over year, and luxury houses by 19%. However, year-to-date data is very preliminary and much more will be known once the spring selling season really gets started in earnest. Also, if the recent financial market volatility continues and becomes even more dramatic, that may cool high-end home markets (and IPO activity) as it has in the past.

2-18_Largest-House-Sales_MLS.jpg2-18_Largest-Condo_Co-op-Sales_MLS.jpg

Supply Growing Faster than Demand

Ultra-Lux-SFD-Avgs_Active-vs-Sales_since-2005_12-month-rolling.jpgUltra-Lux-Condo-etc-Avgs_Active-vs-Sales_since-2005_12-month-rolling.jpgExpired-to-Sales-Ratio_by-Prop-Type_Price-Segment.jpg

However, behind the positive sales statistics, inventory statistics provide a note of caution, especially for what we call the ultra-luxury home segments: houses selling for $5m+ and condos and co-ops selling for $3m+. In those segments, the supply of listings has been surging beyond demand, and many of these listings are expiring without selling. As an example of the supply and demand disconnect, ultra-luxury home sales make up about 2.5% of total MLS sales, but as of late February, they made up 12% of active SF MLS home listings (no offer yet accepted).

A big wildcard in this dynamic is the new luxury condo projects currently on market, under construction and planned. They dramatically swell supply in those areas where they are concentrated. It will be interesting to see if there is enough inherent demand to absorb, in the near future, the increasing supply of $3m, $5m and sometimes $10m+ condos. There have even been recent attempts to sell new penthouse condos in the $40 million price range. (Note: New-project marketing companies often try to keep their sales activity confidential, which can make it difficult to know exactly how well their most expensive units are selling.)

This does not mean that some very expensive houses and condos are not selling very quickly for well over asking price, as some certainly are. It all depends on the property, its specific location, appeal, preparation, marketing and, of course, pricing. Different neighborhoods are often experiencing different market conditions, some much stronger than others. This is discussed in much greater detail in the full report online.

Market Seasonality

The luxury real estate market in San Francisco is intensely seasonal. As illustrated by the 2 charts below, the high-price market wakes up and heats up as the new year gets going, with spring typically being the most active season overall for sales. It then slows way down in mid-summer, spikes back up dramatically for the short autumn selling season, and then plunges for the mid-winter holiday period.

Note the delay between new listings coming on market and listings accepting offers: For example, September is typically the single month with the highest number of new listings, leading to the big October spike of listings going into contract. Sales then usually close 3 to 5 weeks after going into contract. Right now is the period when new luxury listings start pouring on the market for the spring season.

LuxHome_2500-Plus_SFD-Condo_Co-op_New-Listings_by-Month.jpgLuxHome_Units-UC_by-Month-V2-Area-Chart.jpg

New Listings Coming on Market
Long-Term Trends since 2005, 12-Month Rolling Figures

The supply of luxury homes available to purchase plays a huge roll in market dynamics. Supply is affected by 3 large factors: 1) the number of new listings coming on market, 2) how quickly these new listings sell, and 3) how many listings are taken off the market because they cannot find buyers (expired and withdrawn listings). The chart below looks at longer term trends for new listing activity: The number of new listings hitting the market accelerated in early 2016 as the luxury segment was cooling due to financial market volatility (Chinese stock market crash, oil price crash, Brexit vote).

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Sales & Average Dollar per Sq.Ft. Values

Luxury House Market by District

Sales of houses $3 million and above have soared in the central Noe, Eureka & Cole Valleys district (red line in first chart below) in recent years, to jump ahead of, by a tad, the wealthy, old-prestige, Pacific Heights-Marina district (blue line). These rapidly increasing sales have been fueled by younger, very affluent, high-tech industry buyers, who prefer the lower-key neighborhood ambiance, as well as the proximity to the hot Mission district and to highways south to the peninsula. However, the Pacific Heights district still utterly dominates house sales of $5 million and above – that chart can be found in the full report online – and its houses achieve by far the highest average dollar per square foot values, as illustrated by the blue line in the second chart below.

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Luxury Condo Market by District

The older, high-prestige neighborhoods running across the north of the city from Pacific & Presidio Heights-Marina through Russian, Nob and Telegraph Hills have been dominating the sales of luxury and ultra-luxury condos and co-ops (the top 2 lines in the next chart). The greater South Beach, SoMa, Yerba Buena, Potrero Hill and Mission district (the third, red line) saw its sales plunge from mid-2016 to mid-2017, but has had a significant recovery since. All three of these districts see very high dollar per square foot values (second chart below). And of course, some individual sales see much higher values than the averages.

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How the 2018 market plays out depends on a number of factors that are susceptible to change: financial markets, interest rates, the course of the high-tech boom, whether our big, local start-ups proceed with IPOs, political developments, and so on. (Positive & Negative Factors in Bay Area Markets) For the time being, the San Francisco market appears to be off to a heated start characterized by robust demand. Here at Paragon, our 2018 SF sales volume is up 30% year over year, though admittedly we are outperforming the general market, which is up about 5%.

Again, the full report online contains many more analyses: Paragon SF Luxury Home Report.

All our reports and articles are available here: Paragon Main Reports Page

Please contact us if you have any questions, or we can be of assistance in any other way.

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