SF Luxury Market Report | Ruth Krishnan

27 Mar Luxury Home Market Report for San Francisco Real Estate

Posted at 17:38h in SF Market Updates by ruthkrishnan.com

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Dear Friends!

I hope this finds everyone well. I am currently down in LA for a few days attending my first ever Tony Robbins event. For those of you who know me well, you know that I’m a self-improvement junkie and I’ve been mildly obsessed with Tony since I was in my early 20s. I feel so lucky to be here, I’m still pinching myself! If you ever want to talk about your self-improvement journey, or the latest book or podcast you’ve been listening to, reach out to me please. I love surrounding myself with people who are on a similar journey.

Now on to the market… This report focuses mainly on the Luxury market. You can read the same report on the under $3M market here: SFMarketNews.com | March 2017. Annually, we put out a newsletter that shows what you can get in SF based on price. I love these charts because it helps me show buyers what a good budget is for homes in certain neighborhoods. For example, 65 of the homes sold in Noe last year were in the $3-5 million range, and only two sold between $5-10 million. Conventional wisdom says never own the nicest house on the block, so if you are in the $5-10 million range, Noe might not be the best place to invest your money or find your dream home. However, if you go to the north end of town, 11 homes over $10 million were sold. While this might be a better neighborhood to find your home, it is still a small number, which means that if something you love comes on the market, it might be a good idea to buy it. Have some fun with it. Pick your dream house and dream neighborhood and see how many homes like the one you want have sold there.

As for the market, we are not releasing charts yet showing where the spring market is because it’s too early to have all the data. The preliminary stats show a slight increase in home prices and a slight decrease in condo prices. The Krishnan team has been fortunate enough to sell nine homes so far this year, and we have put in offers on dozens more. What we are feeling on the ground is that the market, especially the SFH market, is much more robust than it was in all of 2016. The condo market is hit or miss, with some condos selling very high and some not selling at all. I think 2/2 bath condos are the softest, since that is where the bulk of the inventory is.

I am very happy to say the team is rocking it. I’m so proud that we are able to offer more superior service than ever before. With more hands comes a more extensive system and greater service. We do have some openings in our schedule for some stellar buyers or sellers. Recently, we’ve been working with a few buyers who grew frustrated with other agents who had not been successful in the bidding process. We hear reports from clients that they were not given clear guidance on how high to bid, and that agents were not closely reviewing documents with them. These clients report that when they did write an offer, there was a sense that it was sent in and then the agent just waited to hear back. These buyers have reported feeling frustrated, and in some cases downright angry, at the loss of a home they could have (or should have) won. In these cases, we have been able to take over and move these buyers into contract very quickly. Please keep us in mind for anyone you know who is looking to buy or sell. We aggressively fight to get our buyers into homes using a creative, proven strategy.

Enjoy some sunshine! Let’s catch up soon.

Ruth

& The Krishnan Team

The San Francisco Luxury Home Market Report

The Q1 2017 Survey including 18 custom charts

In this report, various price thresholds will be used for the luxury home designation, depending on when the chart was first created, if different property types are being combined, or simply to look at the high-end market from slightly different angles. If the luxury segment is defined by the top 10% of sales, then the threshold in San Francisco for houses was approximately $3 million in 2016, and for condos, between $1.85 and $1.9 million. However, due to the essential relation of location to value, $3 million might buy you a large, gracious, pristine house in one neighborhood, and an uninhabitable fixer-upper in another.As always in real estate, the devil is in the details.

Year-over-Year Changes in Sales Volume

San Francisco Luxury House Sales

San Francisco Luxury Condo, Co-op & TIC Sales

If you wish, you may skip our summary and jump to additional graphed analyses further below.

MARKET SUMMARY

The luxury real estate market is impacted by a number of factors: positively, by improvement in general economic conditions and confidence, highly-paid employment and population growth, and especially, by the creation of new wealth in large quantities. All these elements were dynamically present in the Bay Area from 2012 through mid-2015. Then significant economic and political volatility put down a damper, pretty much across the board. Chinese stock market turmoil, the crash in oil prices, Brexit, the U.S. presidential election, as well as an apparent cooling in our high-tech boom, all injected uncertainty into financial markets and our local luxury real estate market. Furthermore, Bay Area high-tech IPOs, which had created a stupendous amount of new wealth since 2011, basically dried up – and newly rich or substantially enrichened buyers had played a big role in demand. All this was accompanied by a surge in the construction of new, luxury condo projects in San Francisco, producing a considerable increase in supply, just as demand appeared to be softening.

The luxury market began to cool, with significant, but not cataclysmic adjustments in the standard measures of supply and demand. (The most affordable house segments around the Bay Area continued to rock and roll last year.) Most affected over the past 16 months was the market for re-sale luxury condos, particularly in those districts where big, new-construction projects are concentrated. Their sales appreciably decreased, with some decline in values. It is hard to get definitive data on new-project sales activity, but it is believed to have softened as well with the increase in competitive listings.

While inventory grew, the number of high-end listings, both houses and condos, expiring without selling jumped, a clear sign of supply outpacing demand, sellers looking for more money than buyers were willing to pay, or both.

However, there has been nothing approximating a crash and, all in all, demand held up quite well considering all the circumstances at play. So far, price declines have been relatively minor; there was no falloff in high-end house sales, in fact those selling for $3m+ hit a new peak last October. And some smaller and medium-sized luxury condo projects in the Pacific Heights district saw brisk sales at high prices, this being a highly prestigious area where new construction is relatively rare. Even with some cooling in the high-tech boom and the dearth of new IPOs, the local economy persists as the envy of the world, and an astonishing amount of wealth yet remains in the Bay Area.

If local companies such as Uber, Airbnb, Pinterest and Palantir go public, it could recharge demand as the new-wealth machine starts minting new millionaires once again. On the other hand, how the foreign luxury home buyer will react to political changes both here and abroad is uncertain. For that matter, with all the wildly moving parts currently in local, national and international politics and economics, it is difficult to make predictions with any sense of certainty. However, Ted Egan, chief economist for the city of San Francisco, puts the odds of a new recession at 10% or less.

San Francisco Luxury Home Sales by Neighborhood

Average Dollar per Square Foot Values by Year

Average dollar per square foot values ticked down in 2016 for both high-end houses and condos after years of appreciation, but still remain historically high. Of sales reported to MLS, 10 houses and 34 condos and co-ops sold for over $2000 per square foot; 6 sales reported values over $3000 per square foot. These sales were concentrated in the Pacific Heights district, Russian & Nob Hills, and South Beach & Yerba Buena.

Average dollar per square foot values should always be considered gross generalizations, since there is such a wide variety of homes of differing locations, sizes, conditions, eras of construction, views, lot sizes, and so on. Square footage can also be measured in different ways and not all sales even report square footage.

New Listings, Inventory Levels, Accepted Offer Activity & Closed Sales by Month

In many of the charts following in this report, not only are longer-term trends in supply and demand illustrated, but also the extreme seasonality of the luxury homes market in San Francisco. Activity climbs through spring, slows in summer, spikes in the short autumn selling season, and then plunges during the mid-winter holiday season. Among other things, the seasonality of this segment significantly affects monthly and quarterly median sales prices in the city as the number of expensive home sales ebbs and flows so dramatically.

As noted at the beginning of this report, the price thresholds for the luxury home designation sometimes vary from chart to chart, for the reasons previously mentioned.

New Listings Coming on Market

A long-term view since 2006

Monthly Number of Active Listings

Since 2014

Listings Accepting Offers by Month

Since 2014

Monthly Sales Volume Trends

Since 2012

Market Dynamics Analyses

In many of the following graphs, the cooling of the luxury market in the city in 2016 is illustrated. The changes are significant, but should not be overstated: The market cooled from being characterized by overheated demand and inadequate supply, to something approaching a more normal balance between buyer and seller. So far, there has been neither a crash in demand nor in prices.

Months Supply of Inventory

by Year and by Month

Sales Prices to List Prices

by Year and by Month

Percentage of Listings Selling Over List Price

by Year

Average Days on Market

by Year

Pricing, Overpricing & Expired Listings

The luxury market has always been more prone to egregious overpricing than the general market: Perhaps this simply goes along with fabulous homes in high prestige locations, but it sometimes results in price reductions in the multi-millions. As the market frenzy has cooled, pricing correctly has become ever more important: Overpricing often has significant negative ramifications for sellers, including the possibility of no sale occurring at all – something occurring with greater frequency. As the supply and demand dynamic has shifted, buyers are competing less, negotiating more aggressively, and walking away from listings they see as significantly overpriced.

Luxury House Sales

With and Without Price Reductions

Luxury Condo Sales

With and Without Price Reductions

Trends in Expired Listings

Other recent reports you might find interesting:

Survey of the 2016 San Francisco Real Estate Market San Francisco Apartment Building Market Report

Auto-Updating Market Analytics for San Francisco Homes, $2 Million & Above

The bar charts compare year-over-year data, going back 2 years, for the latest month. The line charts track monthly data over a period of 3 to 5 years. Note that it can take 7 to 15 days after a month’s end for agents to enter in transaction data pertinent to the month in question, so statistics for the latest month can sometimes change significantly as this data is added to calculations. Seasonality can play a significant role in many real estate statistics as the market ebbs and flows during active and ess active sales seasons. Typically, the market is most active in the spring and fall, and slower in the summer and, especially, the mid-winter holidays. The luxury home market is even more deeply affected by seasonality than the general market. To keep things simple, we have, rather arbitrarily, designated homes of $2 million and above as luxury homes. The threshold should be higher for houses (probably in the $2.5m to $3m range), and somewhat lower than $2m for condos, but then we couldn’t get both property types on the same charts. (Stock co-ops and TICs, much smaller market segments, are not included in these calculations.) Needless to say, what one gets for one’s money in different neighborhoods varies enormously. Statistics are generalities, most useful for illustrating general market trends. Moving your cursor across any line chart will pull up month by month data. It may take these auto-updating charts a few moments to load onto the webpage.

New Listings Coming on Market, by Month September is usually the single biggest month for new high-end home listings. Spring is typically the most active season for new listings. New listing activity plunges during the mid-summer and mid-winter holidays.

Total Number of Active Listings for Sale at End of Month Number of Listings Accepting Offers during Month Number of Sales, by MonthClosed sales typically reflect accepted-offer activity in the previous month or so.

Percentage of Listings Selling for over Final Asking Price, by Month It is typically buyer competition for new listings that generates sales prices over list prices.

Median Percentage of Final List Price Achieved on Sale Over 100% signifies overbidding. Well over 100% means a very hot, competitive market.Under 100% signifies more aggressive buyer negotiation.

Median Dollar per Square Foot (upon Sale) 3-Month Rolling Average. Many of the condos selling for over $2m really belong to the “ultra-luxury” class: gorgeous, high-floor units with staggering views, in very prestigious areas and buildings. Generally speaking, such units achieve the highest dollar per square foot values in San Francisco.

Months Supply of Inventory (MSI), by Month This MSI calculation compares the number of active listings at the end of the month with the number of accepted offers over the previous 12 months. The lower the MSI, the greater the buyer demand as compared to the inventory of listings available to buy.

Median Days on Market before Acceptance of Offer 3-Month Rolling Average This statistic only reflects those listings that do indeed sell, i.e. generally speaking, those that the market deems most attractive and well priced.

Definitions: Confusingly, different analytical systems sometimes define (or calculate) certain common statistics – such as Months Supply of Inventory, Days on Market, and Dollar per Square Foot values – in different ways, which, of course, will yield different results. Which is why looking at trends is typically the best use of general statistics. The charts above were generated using the Infosparks system (we also sometimes use Broker Metrics or MLS generated statistics), and the parameters for its calculations can be found here:Infosparks statistical methods defined

Other reports you might find interesting:

30+ Years of San Francisco Real Estate Cycles

10 Big Factors behind the San Francisco Real Estate Market

Bay Area Apartment Building Market

Link to San Francisco Neighborhood Map

It is the relationship between supply and demand that defines the state of the market. Looking at one statistic such as the number of sales, without comparing it to how many listings were available to purchase, may give a distorted view of market conditions. Some statistics, such as months supply of inventory take both supply and demand into account. Last but not least, short-term statistics sometimes fluctuate without great meaningfulness – longer-term trends are always most meaningful. Sales data usually reflects market activity, i.e. when a new listing comes on market and offers are negotiated, occurring 4 to 8 weeks before the sale date. Thus, for example, sales in June mostly reflect new listings and offers negotiated in late April and May.These charts were generated using the Infosparks system by Paragon’s chief market analyst. The statistics only reflect activity reported to MLS, and many new-project-condo sales are not reported to MLS. Data is from sources deemed reliable but may contain errors and subject to revision.