23 Aug San Francisco Real Estate Market Report
Home Values by Neighborhood; Investment Real Estate; New Development
Luxury Home Sales
High-end home sales continue to hit new highs in San Francisco: Last spring was the hottest on record; spring 2015 is blowing through last year’s numbers. The chart above is from our updated luxury report, which can be found here:
SF Luxury Home Market Report
Housing Affordability Index
This CAR Housing Affordability Index (HAI) is calculated using median sales price, household income, interest rates and other financial criteria to determine the percentage of local households which can afford to buy a median priced home. At 12% to 14%, San Francisco and San Mateo have very low affordability readings in comparison to other places – the Index reading is now 23% for the general Bay Area, 34% for CA (house market), and 61% for the U.S..
Affordability calculations are a complex and nuanced issue, especially in San Francisco*. However, one can’t argue with the general trend lines. When the market heats up and prices rise, affordability goes down; when the market goes into a recession (or crashes), affordability bounces up. If affordability declines beyond a certain point, it may become an indicator of an overvalued real estate market. As of Q1 2015, SF’s Index reading is still a little above the historic lows it hit in 2001 and 2007, but please see the footnote for special SF factors.
Changes in mortgage interest rates, in particular, can quickly and significantly affect affordability. Currently, as of May 2015, interest rates are a little above the historic low hit in 2013, but still far below the rates in 2006 – 2008, when they averaged in the 6% to 6.5% range. “Experts” have had a very difficult time correctly predicting interest rate movements in recent years.
New Listings & Buyer Demand
The above chart illustrates the seasonal ebb and flow of the market as new listings come on the market and buyers react by putting properties under contract. Spring is typically the biggest selling season of the year, followed by a large spike in autumn. Market activity usually slows in summer and plunges during the winter holiday season.
Multi-Unit & Investment Real Estate
The two charts below are from our recently issued reports on the multi-unit building market, the first on properties of 2 to 4 units, and the second on larger apartment buildings of 5+ units. The second chart illustrates the parallels between rents and home prices in counties around the Bay Area. Regarding affordability: If someone’s choice is between paying a very high rent or buying an expensive home at today’s low interest rates and with all the tax advantages of homeownership, buying is typically the much better option financially over the longer term. But the devil is always in the details.
The full reports can be found here:
Housing Inventory & New Home Construction
The first chart below and the map following it depict the current boom in new-home construction and the districts where new development is clustered. The second chart illustrates the growth of the condominium segment of the city’s housing inventory via both construction and conversion.(A lot more is coming.) The new-home development situation in San Francisco is fascinating – and a fierce political issue.
Our full report on the topic is here: Paragon Housing & Construction Report
New residential construction is heavily concentrated around the Market Street corridor, the Van Ness corridor just north of Market, and in the large quadrant of the city that lies to the southeast of Market. This is due to the availability of large, previously commercial/industrial-use lots that can be changed to residential use, and the zoning that allows for large – sometimes very large – projects to be constructed in these areas.
Though only about 40 years old, the condo sales market in the city is now larger than the house market. And 99% of all new construction being built for sale consists of new and usually high-end condos.