18 Nov Multiple Angles on a Changing San Francisco Market
We are getting ready to say goodbye to fall…and we’re wrapping it up with a bang! As we prepare to welcome in the winter season, we’re happy to report that we managed to get three of our buyers into contract in the past three weeks. While we saw an uptick in interest rates immediately following the election, they fortunately remain at all-time lows.
In San Francisco, the median housing price is still at over $1.2M and October was a good month for the luxury market ($2+M). However, we’re seeing the market go through some uneven cooling.
We are not headed for a crash, but sales are flattening and buyer demand is softening. Many sellers are struggling with not getting as much as they had hoped. Some of them are holding on and renting their properties, for now at least. We believe that if you want to sell in the next four years, now is probably the best time. Still, we advise people to hold on to properties forever if they can. Real estate continues to be a very safe investment and a very good long-term play in SF.
This newsletter digs deeper into the nuances of what’s happening in our fine city and has some pretty charts to spell it out 🙂
If you know anyone who is wondering what the heck is going on with the value of their home or the market as a whole, I’m always happy to chat with them.
With Warmest Regards,
& The Krishnan Team
Multiple Angles on a Changing San Francisco Market
SF Real Estate Market Continues to Cool Unevenly
& Luxury House Sales Unexpectedly Jump in October
November 2016 Paragon Report
Median sales prices usually jump in autumn, to a large degree because of the seasonal increase in luxury home sales, and that is what happened in October. The combined house and condo median sales price was up 6% from October 2015, but substantially unchanged from the previous peak median prices achieved in spring 2015 and spring 2016.
The six weeks from mid-September to Halloween constitute the heart of the relatively short autumn selling season, with the market typically going into semi-hibernation from Thanksgiving through mid-January. (Sales still occur during this period and it can be an excellent time to buy with the big drop in competition.) Generally speaking, this autumn experienced further cooling in SF market conditions: October saw significant year-over-year declines in accepted-offer and closed-sale activity, and significant increases in price reductions and listings expiring without selling. Condos appear to be most affected on all these counts, with some decline in condo values: This situation is certainly being exacerbated by new condo projects coming on market at the same time that buyer demand has been softening.
The house market has continued to see declines in listing inventory and to shrink as a percentage of total home sales, thus becoming a scarcer commodity. It has performed much better, especially in more affordable neighborhoods. And sales of luxury houses suddenly spiked dramatically in October, though this appears to have been mostly driven by a huge surge in such listings in September. This jump in expensive house sales drove the median house sales price to its highest point ever in October, to just over $1.4 million. The condo median sales price in October, at $1,150,000 was above that of October 2015, but a tad below its all-time high in June. Please note that median sales prices are not perfect measures of changes in fair market value, since they fluctuate for a number of reasons, including seasonality and significant changes in the inventory of homes for sale.
Bay Area Case-Shiller Home Price Index
Case-Shiller Index numbers all refer to a January 2000 price of 100, and track appreciation since then. Thus 243 on the chart signifies a price 143% above that of January 2000.
As mentioned in earlier reports, the highest pressure of buyer demand has shifted in the past year toward more affordable homes, and that is now showing up in the different price movements of low, middle and high-price tier houses. The Case-Shiller Index does not measure median sales price changes, but has its own special algorithm to determine same-home appreciation. This short-term chart illustrates how lower-priced houses have continued to appreciate rapidly, while mid-price and high-price houses have recently more or less plateaued, and condo prices have declined. The Bay Area Index for August 2016 was published in late October.
San Francisco Luxury Home Sales
Houses of $3 million+/ Condos, Co-ops & TICs of $2 million+
This report will generally consider houses selling for $3m or more, and condos, co-ops and TICs selling for $2m or more, as constituting the luxury home segment in the city. They total just under 10% of total home sales. For the ultra-luxury designation, houses are bumped up to $5m or more, and condos, co-ops and TICs to $3m or more. These price segments total 2.6% of total home sales.
Pursuant to a big jump in new high-end home listings in September, luxury house sales in October, suddenly hit their highest point in many years, if not ever. This is illustrated in the red line in the chart above. Luxury condo sales reported to MLS, as seen in the blue line, were higher than in October 2015, but far below peaks hit in previous spring selling seasons. However, this does not count new-project luxury condo listings unreported to MLS, which are playing an increasingly large role in the market and creating substantial competition for resale luxury-condo listings.
Below are 2 charts breaking out luxury home sales by city district.
The past 14 months has seen the Chinese stock market crash, the oil price crash, Brexit, high U.S. financial market volatility, a slowdown in the Bay Area high-tech boom, and enormous election-related anxiety. It is difficult to tell exactly how these events may have affected real estate markets. However, despite significant affordability issues and the transition to less heated market conditions – as illustrated in the analyses of this report – so far, we have seen no sign of anything approaching an impending crash in our local market.
Year-over-year changes by property type and price segment
All San Francisco residential sales
Months Supply of Inventory (MSI): MSI measures how long it would take to sell the current inventory of listings for sale at the average annual rate of sale. All segments ticked up, indicating some market softening, but the general house market is still well within seller market territory. The biggest change is in the luxury condo market, where inventory has been hitting new highs, while sales have generally been declining, thus putting the segment in buyer market territory. Again, these figures do not include the large number of new-project listings and sales unreported to MLS, which would probably increase the condo MSI readings.
The two following charts are from our recent report on the Bay Area Apartment Building market, mostly focusing on San Francisco, Alameda and Marin Counties.
by building size and submarket
Average Asking Rents by Bay Area County
Rent rates in San Francisco have been dropping in 2016 after peaking in 2015, with estimates of the decline generally running in the range of 3% to 6.5%, but with some city rental agents saying that certain districts have seen slumps of more than 10%. We believe there are 3 big factors at work: a rush of large, newly built apartment buildings coming on market; a softening of demand as hiring trends have fluctuated; and affordability issues that have caused more prospective renters to simply turn away from living in the city, their first choice, and look elsewhere. However, even with the recent decline, the city still has the highest rents in the country.
These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in the Bay Area, each with its own unique dynamics. Median prices can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how value statistics apply to any particular home without a specific comparative market analysis.
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