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2012: An Accelerating San Francisco Market
March 2012 Update
"If I knew where I was going to live for the next five years or 10 years, I'd buy a home and I'd finance it with a 30-year mortgage. It's a terrific deal --- If I had a way of buying a couple hundred thousand single-family homes --- I would load up on them. And I would take mortgages out on them at very low rates ---
[With] a 30-year mortgage --- it's a leveraged way of owning a very cheap asset now.
That's as attractive an investment as you can make." Warren Buffet, February 27th CNBC Interview on Investing
You might remember that in my January newsletter I mentioned that the SF real estate market seemed to have turned a corner in 2011 and that conditions were similar to what they had been in 1996, when the market started accelerating after a 4-5 year down market in the early nineties. There were big improvements last year in consumer confidence, buyer demand, and general economic conditions. We also saw a surge in high-tech employment and wealth (which looks like it will continue to rise), sky-rocketing rents, climbing stock market values and the lowest interest rates in history.
We’re further into the new year now and everything we’ve seen so far in the market is reinforcing the conclusions we came to in January. The measurements of supply and demand - the driving force behind any changes in prices - that we’re tracking now show a market that is rapidly accelerating. Even setting aside the statistics and numbers, this is what we’re seeing on the street, in our day-to-day business of representing clients buying and selling real estate.
San Francisco has often marched to the beat of its own drum compared with other markets in the Bay Area, California, and the Nation in general, and that’s exactly what’s happening now: our market is recovering sooner and faster than most (though we are seeing signs of recovery in other markets too). Of course, the City itself is full of neighborhood micro-markets, which have been showing recovery at different speeds -- or in some cases, not yet recovering. When it comes to real estate, generalizations can only get you so far. Ultimately, it boils down to a specific home in a specific location with its specific conditions and circumstances, and the demand from buyers for such a property.
All data herein is from sources deemed reliable but may contain errors, and is subject to revision.March 2012 © Paragon Real Estate Group
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Months' Supply of Inventory (MSI)
MSI is a measure of how long it would take to sell the existing inventory of homes for sale at current market conditions: the lower the MSI, the stronger the demand as compared to supply. For every property type in San Francisco, MSI is either at its lowest reading ever, or very, very close to it. Any reading below 3-4 months of inventory is typically considered a "Sellers' market." All SF property types now register as strong Sellers' markets, though conditions do vary by neighborhood. Nationally, MSI has also fallen, but it is still over 6 months of inventory. |
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Percentage of Listings Accepting Offers (by MONTH)
This is another excellent measure of demand vs. supply - the higher the percentage, the stronger the demand as compared to the supply of homes available to purchase. This measure increased dramatically in 2011 when compared to previous years, but since 2012, it has skyrocketed to levels we can't remember ever seeing. The competition for reasonably priced, general-appeal homes is ferocious in many areas of the city, and multiple offer situations are more common now than they've been in at least 5 years. |
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Percentage of Listings Accepting Offers (by WEEK)
Typically, in the first 6 -8 weeks of the new year, the market just starts to wake up. Not in 2012. This chart looks at the market WEEK by WEEK for the six months ending February 26th. In mid-January, demand exploded. And remember that the percentages for the last 4 months of 2011 were already much higher than in previous years. Many properties are selling immediately upon coming on market and the number of new listings is not coming close to meeting demand. This creates upward pressure on prices. |
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SF Homes for Sale
On any given day, the inventory of listings available to purchase is dramatically below the levels of previous years, typically by 30%-50%. And yet the number of highly qualified and motivated buyers entering the market is increasing. Year over year, February's closed unit sales were up about 14%, but on a hugely reduced inventory of available listings. If inventory was nearer normal levels, the number of sales would be much higher. In the meantime, the market has become very competitive in many parts in the city. |
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Case-Shiller High-Tier Home Price Index
This Index ended 2011 pretty much where it began. The Index tracks house sales in a 5-county SF "Metro Area", of which the city's sales are only a small percentage. Even as our market has begun a recovery, the Index is pulled down by the other counties' market conditions (not as positive as the city's). The C-S High-Tier Price Index applies to the city best, but it still doesn't apply all that well: for the 5-county Metro Area, the top third tier of sales in December 2011 started at $573,000; the city's top third last year started at $860,000. (And it's much higher in the city's central and northern districts.) The higher the price segment, the less affected it is by distress sales; such sales cluster in the less affluent segments and significantly depress market conditions there. The 2012 SF market may be in a similar place to that of 1996, i.e. starting to accelerate after 4-5 years of decline or doldrums. |
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Noe Valley-Castro-Cole Valley Market
Realtor District 5, in the center of the city, is one of the areas where the market has changed most dramatically - to some extent, due to being highly sought after by high-tech employees working both inside and outside the city. Though median sales price is an imperfect signifier of changes in values, and can fluctuate for a number of reasons, we believe in this case it generally reflects market reality. Huge buyer demand and extremely low inventory in District 5 are pushing prices higher: the median sales prices for both houses and condos have risen to their highest points since 2008. For our complete report:
SF District 5 Analysis |
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SoMa-South Beach-Yerba Buena-Mission Bay
The greater South of Market area is another one of the city's markets that is noticeably heating up - again, to a large extent, due to surging high-tech employment and wealth. The supply of brand new condos for sale has dwindled since 2008, helping to create the biggest inventory crunch since this area started to be developed in the mid-nineties. This is exerting upward pressure on prices. For our complete report:
SoMa-South Beach Market Analysis |
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Average Days on Market (DOM)
This statistic is easily distorted by a relatively small number of sales that sell after being on the market for a long time, and large fluctuations are not unusual. It certainly doesn't reflect the average days on market for well-priced, well-prepared, well-marketed, general-appeal homes, which often accept offers within 1 or 2 weeks of going on market. Still, for what it's worth, average DOM fell to its lowest point in years in February. |
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SF Statistics by Neighborhood
We recently completed our semi-annual review of non-distress home sales by neighborhood; property type; bedroom count; low, high and median price; average size and average dollar per square foot. (Mixing distress and non-distress sales creates misleading statistics for both categories, so we separate them out.) This is just one of eight charts. For our complete report:
San Francisco Neighborhood Values |
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What SF Buyers Bought in 2011
If you didn't see our data-mining analysis of 2011 home sales in San Francisco, here is one panel of 14. You can find the full report, full of surprising details, here:
What Buyers Bought in 2011 |
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Mortgage Interest Rates
The impact that lower interest rates have on the ongoing cost of home ownership, especially when doing a rent vs. buy analysis in a city of soaring rents, can't be overstated. Here, once again, is a graph of just how dramatic the changes have been in recent years. Courtesy of Julian Hebron of RPM Mortgage. |
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| No one knows San Francisco real estate better than we do. |
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