San Francisco New Housing Construction & Inventory Trends

Many of the charts included below are based on the San Francisco Planning Department’s excellent 75-page 2015 Housing Inventory report, released on May 27, 2016, which can be accessed using the link at the bottom of this article. We are very grateful for the enormous effort put into creating that report by Audrey Harris and other Planning Department personnel.

Numbers in different charts below will not always agree: This is due to the vagaries of how and when condos and other housing units are counted as filed, authorized, permitted or completed by the different agencies who compile this data. As far as the real estate market is concerned, the situation is complicated by the fact that new construction condos are often marketed and “sold” (offers accepted) well before they finish construction, i.e. market dynamics of supply and demand may be significantly affected by units that do not yet exist.

The politics of new home development in San Francisco are not for the weak of heart. There are vociferous disagreements between neighborhood and homeowner associations, developers, affordable housing advocates, tenant’s rights groups, business groups, and pro-, slow- or no-growth advocates regarding how it should best proceed (or not proceed). The battles are non-stop in every political or legal venue available.

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Comparing total inventory (illustrated above) to annual sales reveals that condos and TICs turnover about twice as often as houses in San Francisco. About 2% to 2.5% of all SF houses are now sold each year, an extremely low turnover rate, which has exacerbated the city’s inadequate, house-listing inventory situation. For condos, turnover runs in the 4.5% to 5% range, which is roughly in line with national averages for home sales, and for TICs, turnover is in the 5% to 6% range. These are all very general approximations. Since condos and TICs are typically smaller than houses, and often purchased by younger buyers and/or smaller households – singles, couples, beginning families – it’s not surprising they sell more often than houses, whose owners are often older, more settled in life, and have larger households.

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The process of application and review, public hearings (and sometimes ballot proposals), revisions, entitlement, permitting, construction, inspection and completion is complex and lengthy. Housing units are being planned and built, and existing units are being altered and removed. And there are many housing types: rental or sale units, market rate or affordable, social-project housing or luxury condominiums.

The new-housing landscape in San Francisco is in constant flux: new projects, developer plan changes, city plan changes, and shifts in economic and political realities. The basic fact is that the city, after its recent 2008-2012 new-construction slump, is now experiencing a huge building boom. However, it should be noted that booms can slow dramatically or even come to a screeching halt if economic circumstances significantly change.

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Residential Development by City District

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SF Development Pipeline Map

New construction has been concentrated in a few specific districts of the city, mostly where there are commercial lots able to be converted to residential use and where higher density housing projects are most viable. The ability to take under-utilized commercial property sites and turn them into multi-unit or even high-rise residential projects is particularly prized. Generally speaking this describes the quadrant of San Francisco around and to the southeast of the Market Street corridor.

New Housing Construction by Bay Area County

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Affordable Housing Construction

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Very generally speaking, the city requires that new home developers either dedicate 15% of their units to affordable housing, which could be built on-site or on another city site, or contribute to the city’s affordable housing fund “in lieu” of building the units themselves. (The rules are more complicated than that, and there’s something on the June ballot that will change them further.) There are few subjects more difficult and politically charged in San Francisco than affordable housing: how much should be built where and who should be responsible for the costs.

Affordable housing units are allocated, rented and sold under rules and formulas pertaining to social and economic circumstances and housing cost. Large projects are also built on an ongoing basis by private-public social organizations for dedicated purposes such as senior housing. Looking at the number of units actually being built, there is a general consensus that current construction is deeply inadequate to needs.

In 2015, a total of about $73 million was collected from developers as partial payments of in-lieu fees for projects.

Bay Area Housing Affordability Trends

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Bay Area Housing Affordability Report

San Francisco Housing Units Demolished,
Merged and Removed

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Housing units are gained by additions to existing housing structures, conversions to residential use, and legalization of illegal units. Dwelling units are lost by merging separate units into larger units, by conversion to commercial use, or by the removal of illegal units.

New Development Pipeline

We also have an overview of the quarterly San Francisco Planning Department’s Pipeline Report, which complements the annual Housing Inventory reports with a longer term perspective: The San Francisco Residential Pipeline Report.

There are over 60,000 housing units of all kinds currently in the pipeline – and the pipeline is growing and changing quickly now – but some of the bigger projects (such as Treasure Island, Hunter’s Point/Shipyard, Candlestick Point) may take decades to complete. Also, just because a project is in the pipeline does not mean it will be built as planned, or even built at all.

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Pipeline Analysis, Based on SF Business Times June 2015 Project Breakdown
(A little outdated but still providing useful insight)

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San Francisco Housing Stock Breakdown
A Fascinating 2014 Analysis by the San Francisco Controller’s Office

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The Context behind San Francisco New Housing Development

What ultimately underpins new housing construction is demand. San Francisco has been experiencing surging population, employment and new wealth creation, that has so far been outpacing new housing supply. However, as of spring 2016, it appears that new hiring has slowed, at least in the short term.

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Insufficient Housing = Increasing Prices & Rents

Below are two of our charts illustrating the rental and sale markets in San Francisco. As of spring 2016, it appears that appreciation rates may have begun to finally slow or plateau.

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Condo Values by Era of Construction

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The first golden age of SF apartment buildings, many of which were later turned into condos, was in the period of 1920 – 1940: The units in these buildings are large, light, gracious and filled with elegant detail. Pacific Heights and Marina are filled with these buildings. Though there are beautiful condos built in other eras (Edwardian flats, Art Deco apartments), the second golden age really arrived with the latest burst of new-condo construction, built for an increasingly affluent population: These units are ultra-modern, high-tech and feature highest quality finishes and amenities. They are exemplified by the new, luxury high-rises of the greater South Beach-Yerba Buena area, though variations on this theme, in non-high-rise form, have been springing up all over the city.

The units in these newer buildings command a premium both when rented or, as seen in the chart above, when sold – now surpassing an average dollar per square foot value of $1000, and sometimes far above that. This is the major motivator for developers today, many of whom are now concentrating on luxury or what might be called ultra-luxury condo construction. There is a question as to whether the luxury segment is being overbuilt considering the size of the buyer pool for such expensive units.

Housing Unit Construction by Bedroom Count

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We haven’t found an easy place for construction data by unit size, so this first chart above is extrapolated from SF MLS sales of condos built 2001 -2015. It may not apply perfectly to units built as apartment rentals or affordable housing.

Typically, the smaller the unit, the higher the dollar per square foot value on sale or rental, however in San Francisco, 3+ bedroom condos are often high-floor units with spectacular views that sell for extraordinary sums – but these would be outliers to the general rule.

Below are links to the SF Planning Department Pipeline and Housing Inventory report webpages. They contain a huge amount of data, which we have attempted to represent accurately. As noted by their authors, who did an incredible job, the original reports themselves are “compiled and consolidated from different data sources and subject to errors due to varying accuracy and currency of original sources.”

2015 SF Planning Department Housing Inventory Report, Issued May 2016

San Francisco Planning Department Pipeline Report

SF Development Pipeline Map

Midway through the Spring 2016 Selling Season

San Francisco Median Home Price Appreciation
Short-Term & Long-Term Trends

As seen in the first chart below, the combined house-condo median sales price hit a new high in April. However, as the second chart illustrates, so far this year, while median house prices continued to appreciate, condo and TIC prices appear to have generally plateaued. 2012-2015, spring was the most dynamic, high-demand/low-supply selling season of the year.

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Market Dynamics by Property Type & Price Segment

As mentioned in our April report, different segments of the market appear to be diverging. The below charts separate the San Francisco homes market into house and condo/co-op/TIC segments, then further subdivide each into 4 price segments. The lowest, most affordable, price segments are defined by the median sales prices for the first 4 months of the year. The highest price segments (or luxury home sectors) are defined, approximately, by the top 10% of sales.

Very generally speaking, the house market has remained hotter than the condo market, which appears to have cooled to some degree (but nothing remotely approximating a crash), and more affordable homes are seeing significantly more demand than luxury homes, where the pool of potential buyers is much smaller. The luxury condo market, in particular, may be being impacted by an increase in large, new, luxury-condo projects arriving on market, especially in those districts where they are mostly being built. The number of resale luxury condo listings in San Francisco hit an all-time high in April.

These analyses do not include new-project condo activity unreported to MLS, which is now a significant portion of the market: Unfortunately, our access to definitive data regarding current activity in new condo sales is limited.

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More on the luxury market: SF Luxury Home Market Analytics

Percentage Changes in Median Sales Prices
& Average Asking Rents, 1994 to Q1 2016

The first chart tracks year-over-year changes in annual median sales prices for San Francisco houses. The year of greatest percentage appreciation was 2000 at the height of the dotcom bubble (though on a dollar appreciation basis, recent years far exceeded earlier periods). This is a generalized overview: Homes in different neighborhoods and in different price segments often saw wide variations in annual appreciation rates.

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More on real estate cycles: 30+ Years of Bay Area Real Estate Cycles

This second chart illustrates appreciation in average asking rents. Note how much rents declined after the dotcom bubble ended, while the effect of the 2008 financial markets crash was much milder. We have heard from multiple city sources that available rental inventory has significantly increased and renter demand significantly decreased in recent months, which may reflect a possible softening in new, high-tech hiring. We shall see if this begins to show up more definitively in upcoming rent and employment statistics. Or it may simply be a temporary lull in the market.

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More on SF & Bay Area Rents: Rent Trends Report

Our Q1 report on the apartment building market: Bay Area Apartment Market

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate. New construction condos not listed or sold on MLS are not counted in these statistics, though they often affect market dynamics. Sales statistics of one month generally reflect offers negotiated 4 to 6 weeks earlier. Last but not least, different analytical systems sometime calculate standard real estate statistics differently, which can deliver variable results.

© 2016 Paragon Real Estate Group

The San Francisco Luxury Home Market | Homes of $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 less 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. 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 during Month

Number of Listings Accepting Offers, by Month

Number of Sales, by Month

Percentage of Listings Selling for over Asking Price, by Month

Median Percentage of List Price Achieved on Sale

Over 100% usually signifies competitive overbidding; under 100% signifies more aggressive buyer negotiation.

Median Dollar per Square Foot (upon Sale)
3-Month Rolling Average

Months Supply of Inventory (MSI), by Month

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

Expensive Home Sales by San Francisco District & Neighborhood

Note that these charts using differing price points for the “luxury home” designation.

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Other reports you might find interesting:

Market Analytics for General SF Market

30+ Years of San Francisco Real Estate Cycles

San Francisco Neighborhood Affordability

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.

Recessions, Recoveries & Bubbles

Below is a look at the past 30+ years of San Francisco Bay Area real estate boom and bust cycles. Financial-market cycles have been around for hundreds of years, all the way back to the Dutch tulip mania of the 1600’s. While future cycles will vary in their details, the causes, effects and trend lines are often quite similar. Looking at cycles gives us more context to how the market works over time and where it may be going — much more than dwelling in the immediacy of the present with excitable pronouncements of “The market’s crashing and won’t recover in our lifetimes!” or “The market’s crazy hot and the only place it can go is up!” 

Note: Most of these charts generally apply to higher-priced Bay Area housing markets, such as those found in much of San Francisco, Marin, Central Contra Costa and San Mateo Counties. (Different market price segments had bubbles, crashes and recoveries of differing magnitudes in the last cycle, which is addressed at the end of this report.)

Market Cycles: Simplified Overviews

Up, Down, Flat, Up, Down, Flat…(Repeat)

The first chart below charts changes in dollar values, according to the Case-Shiller Index method (January 2000 = a home value of 100). The second chart graphs ups and downs by percentage changes at each turning point.

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Smoothing out the bumps delivers the simplified overviews above for the past 30 years. Whatever the phase of the cycle, up or down, while it’s going on people think it will last forever: Every time the market crashes, the consensus becomes that real estate won’t recover for decades. But the economy mends, the population grows, people start families, inflation builds up over the years, and repressed demand of those who want to own their own homes builds up. In the early eighties, mid-nineties and in 2012, after about 4 years of a recessionary housing market, this repressed demand jumps back in (or “explodes” might be a good description) and prices start to rise again. It’s not unusual for a big surge in values to occur in the first couple of years after a recovery begins.

All bubbles are ultimately based on irrational and/or criminal behavior, whether exemplified by junk bonds, Savings & Loan frauds, dotcom stock hysteria, “Dow 30,000” exuberance, “the end of the business cycle” nonsense, gorging on unsustainable debt, runaway greed (without any corresponding desire to produce anything of value) or dishonest financial engineering, but the most recent subprime-financing/ loan-fraud bubble was even more abnormal than usual, because it was fueled by large numbers of buyers purchasing homes that they clearly couldn’t afford (liar loans, deceptive teaser rates and the abysmal decline in underwriting standards) with no actual investment in the properties being bought (no down payment, 100%+ loans).

This Recovery vs. Previous Recoveries

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The light blue columns in the above chart graph the home-value appreciation that occurred in the first three years of each recovery – our latest rebound has been somewhat quicker than other recoveries, probably due to 1) the depth of the previous market decline, and 2) the huge, high-tech employment, population and wealth boom that has played out in San Francisco and nearby counties. The gray columns chart the appreciation of past recoveries from the beginning to peak value for each cycle (except for the latest cycle, for which the peak has not yet been defined), and the red bars delineate the percentage declines from those peaks, pursuant to the market adjustments that occurred. As always, note that market appreciation and depreciation rates can vary widely by county, community and neighborhood.

Surprisingly consistent: Over the past 30+ years, the period between a recovery beginning and a bubble popping has run 5 to 7 years. We are currently about 4 years into the current recovery, which started in early 2012. Periods of market recession/doldrums following the popping of a bubble have typically lasted about 4 years. (The 2001 dotcom bubble and 9-11 crisis drop being the exception.) Generally speaking, within about 2 years of a new recovery commencing, previous peak values (i.e. those at the height of the previous bubble) are re-attained — among other reasons, there is the recapture of inflation during the doldrums years. In this current recovery, those homes hit hardest by the subprime loan crisis — typically housing at the lowest end of the price scale in the less affluent neighborhoods, which experienced by far the biggest bubble and biggest crash — are taking longer to re-attain peak values. However, higher priced homes — which predominate in San Francisco, Marin and San Mateo Counties — have already surged well past their previous peaks.

This does not mean that these recently recurring time periods necessarily reflect some natural law in housing market cycles, or that they can be relied upon to predict the future. Real estate markets can be affected by a bewildering number of economic, political and even natural-event factors that are exceedingly difficult to predict.

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In the 2 charts below tracking the S&P Case-Shiller Home Price Index for the 5-County San Francisco Metro Area, the data points refer to home values as a percentage of those in January 2000. January 2000 equals 100 on the trend line: 66 means prices were 66% of those in January 2000; 175 signifies prices 75% higher.

1983 through 1995

(After Recession) Boom, Decline, Doldrums

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In the above chart, the country is just coming out of the late seventies, early eighties recession – huge inflation, stagnant economy (“stagflation”) and incredibly high interest rates (hitting 18%). As the economy recovered, the housing market started to appreciate and this surge in values began to accelerate deeper into the decade. Over 6 years, the market appreciated about 100%. Finally, the late eighties “Greed is good!” version of irrational exuberance — junk bonds, stock market swindles, the Savings & Loan implosion, as well as the late 1989 earthquake here in the Bay Area — ended the party.

Recession arrived, home prices sank, sales activity plunged and the market stayed basically flat for 4 to 5 years. Still, even after the decline, home values were 70% higher than when the boom began in 1984.

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1996 to Present

(After Recession) Boom, Bubble, Crash, Doldrums, Recovery

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This next cycle looks similar but elongated. In 1996, after years of recession, the market suddenly took off and continued to accelerate til 2001. The dotcom bubble pop and September 2001 attacks created a market hiccup, but then the subprime and refinance insanity, degraded loan underwriting standards, mortgage securitization, and claims that real estate never declines, super-charged a housing bubble. Overall, from 1996 to 2006/2008, the market went through an astounding period of appreciation. (Different areas hit peak values at times from 2006 to early 2008.) The air started to go out of some markets in 2007, and in September 2008 came the financial market crash.

Across the country, home values fell 15% to 60%, peak to bottom, depending on the area and how badly it was affected by foreclosures — most of San Francisco got off comparatively lightly with declines in the 15% to 25% range. The least affluent areas got hammered hardest by distressed sales and price declines; the most affluent were typically least affected. Then the market stayed flat for about 4 years, albeit with a few short-term fluctuations. Supply and demand dynamics began to change in mid-2011, leading to the market recovery of 2012.

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The Recovery since 2012 (Case-Shiller)

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This chart above looks specifically at home price appreciation since 2012 when the current market recovery began. Generally speaking, the spring selling seasons have seen the most dramatic surges in appreciation. It’s not unusual for appreciation to slow or flatten in the second half of the year. This chart below illustrates the connection between seasonality and appreciation over the past 4 years.

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The Panorama: From the late 1980’s to Present

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San Francisco Median Sales Price Appreciation

The charts below look at median sales price movements in San Francisco County itself over the shorter and longer terms. These do not correlate exactly with Case-Shiller – firstly because C-S tracks a “metro area” of 5 Bay Area counties, and secondly, because median sales prices are often affected by other factors besides changes in fair market value (such as significant changes in the distressed, luxury and new-construction market segments; in interest rates; seasonality; buyer profile; and so on).

The Current Recovery: 2012 – Present

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In 2011, San Francisco began to show signs of perking up. An improving economy, soaring rents, low interest rates and growing buyer demand coupled with a low inventory of listings began to put upward pressure on prices. In 2012, as in 1996, the market abruptly grew frenzied with competitive bidding. The city’s affluent neighborhoods led the recovery, and those considered particularly desirable by newly wealthy, high-tech workers showed the largest gains. However, virtually the entire city soon followed to experience similar rapid price appreciation.

San Francisco median home sales prices increased dramatically in 2012, 2013, 2014, and then again in the first half of 2015. In the second half of 2014, after the spring frenzy had cooled off, home prices flattened out, which is what occurred in 2015 as well. At this point in early 2016, we are waiting to see what the new spring market brings.

Longer-Term: 1993 – Present

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Comparing San Francisco, California & National
Median Price Appreciation

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San Francisco has been out-performing the overall state and national markets.

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San Francisco Rents

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Besides, home prices, home rental rates are major indicators of what is occurring with housing costs and the local economy. If anything, rents have appreciated even more extremely than home prices in San Francisco (and other areas of the Bay Area) – and, of course, renters get no advantages from low interest rates, multiple tax deductions and advantages, or home-price appreciation over time. One classic indicator of an overpriced home market is when prices outpace rents. So far, this has not happened in San Francisco: Both types of housing costs have soared in recent years.

It’s interesting to note that SF rents actually dropped much further after the dotcom bubble burst than after the 2008 financial markets crash, though the latter was a much more destructive economic event. It suggests that local rents may be more affected by the simple ebb and flow of high-tech hiring and employment than by other macro-economic issues, such as stock market changes. If one loses one’s job and the likelihood of finding another in the area plunges, it may be an immediate imperative to move to a less expensive rental area (pressuring rents lower); if one’s net worth plunges with a stock market crash, one may no longer afford to buy a home (pressuring home prices lower). This is an oversimplification, but may still go some ways to explaining the different scale of reaction by purchase and rental markets to different macro-economic events.

Rent Trends Report

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Mortgage Interest Rates since 1981

It’s much harder to decipher any cycles in 30-year mortgage rates, but rates remain astonishingly low by any historical measure, and this, of course, plays a huge role in the ongoing cost of homeownership and the real estate market.

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More information regarding underlying demographic and economic conditions of the current real estate market can be found here: 10 Factors behind the SF Market

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Housing Affordability Index (HAI) Cycles, 1991 – Present

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Unsurprisingly, there is a reverse correlation between the trend lines for housing affordability rates and those of real estate price cycles (above). HAI rates jump higher in market recessions, peaking at the bottom of the market, and then decline as the market recovers, bottoming out when peak prices are hit. The lowest Bay Area housing affordability housing index rates (probably in history) were hit in 2007 right before the 2008 market crash. The Bay Area overall is still above those lows in its current recovery.

The 2008 San Francisco Bay Area real estate crash was not caused just by a local affordability crisis: It was triggered by macro-economic events in financial markets which affected real estate markets across the country. It’s important to note that in the past (certainly going back at least 50 years), major corrections to Bay Area home prices did not occur in isolation, but parallel to national economic events (though the 1989 earthquake, which occurred just before the national recession began, certainly exacerbated the local downturn). Ongoing speculation on local “bubbles” often neglect to remember this.

Still, dwindling affordability is certainly a symptom of overheating, of a market being pushed perhaps too high. Looking at the chart above, it’s interesting to note that the markets of all Bay Area counties hit similar and historic lows at previous market peaks in 2006-2007, i.e. the pressure that began in the San Francisco market spread out to pressurize surrounding markets until all the areas bottomed out in affordability. This suggests that one factor or symptom of a correction, is not just a feverish San Francisco market, but that buyers can’t find affordable options anywhere in the area. We are certainly seeing that radiating pressure on home prices occurring now, starting in San Francisco and San Mateo (Silicon Valley) and surging out to all points of the compass.

San Francisco, with a Housing Affordability Index (HAI) reading of 11% is about 3% above its all-time historic low in Q3 2007, but affordability in most other Bay Area counties, while generally declining, still remain significantly above their previous lows. By this measure, the situation we saw in 2007-2008 has not yet been replicated.

Significant increases in mortgage interest rates would affect affordability quickly and dramatically, as interest rates along with, of course, housing prices and household incomes, play the dominant roles in this calculation.

Bay Area Housing Affordability Report

Housing Affordability Rate Calculation Methodology

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Inflation & Interested Rate-Adjusted Housing Cost (since 1993)

The Home Cost Trends chart below reflects a very approximate calculation of monthly home payment costs (principal, interest, property tax and insurance) adjusted for inflation– i.e. in 1993 dollars – using annual median house sales prices, average annual 30-year interest rates, and assuming a 20% downpayment. The average annual compounding CPI inflation rate fluctuated, but averaged approximately 2.4% over the period, and average annual mortgage rates fluctuated from 8.4% to 3.7% (see mortgage interest rate charts earlier in this report), which, as mentioned before, had a huge impact on financing costs.

Adjusting for inflation and interest rate changes means that though the median sales price is now far above that of 2007, the monthly housing cost is still a little bit below then. This isn’t a perfect apples-to-apples comparison because it doesn’t take into account that the amount of the 20% downpayment increased significantly over the time period. Still, since ongoing cost is typically an important factor for homebuyers (at least those getting financing), this affords another angle on our market.

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Different Bay Area Market Segments:
Different Bubbles, Crashes & Recoveries

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The comparison composite chart dramatically illustrates the radically different market movements of different Bay Area housing price segments since 2000. Farther below areupdated individual price charts for each price segment.

Again, all numbers in the Case-Shiller chart relate to a January 2000 value of 100: A reading of 220 signifies a home value 120% above that of January 2000. The chart above illustrate how different market segments in the 5-county SF metro area had bubbles, crashes and now recoveries of enormously different magnitudes, mostly depending on the impact of subprime lending. The lower the price range, the bigger the bubble and crash. In the city itself, where many of our home sales would constitute an ultra-high price segment, if Case-Shiller broke it out, many of our neighborhoods have risen to new peak values. The lowest price segment, more prevalent in other counties, may not recover peak values for years. Updated C-S charts for each price segment are below.

If one disregarded the different bubbles and crashes, home price appreciation for all three segments since January 2000 is now in the 120% – 124% range. Just recently the low-price tier has begun taking the lead in home price appreciation (though, again, it remains far below its previous peak value).

Updated Case-Shiller Price-Tier Charts

Low-Price Tier Homes: Under $560,000 as of 2/16

Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash
(60% decline, 2008 – 2011). Strong recovery but well below 2006-07 peak values.

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Mid-Price Tier Homes: $560,00 to $900,000 as of 2/16

Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline)
than low-price tier. Strong recovery has put it back to its 2006 peak.

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High-Price Tier Homes: Over $900,000 as of 2/16

84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Now climbing well above previous 2007 peak values.

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San Francisco Market Reports

San Francisco Neighborhood Values

San Francisco New-Housing Pipeline Update

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. All numbers are approximate and percentage changes will vary slightly depending on the exact begin and end dates used for recoveries, peak prices and bottom-of-market values.

Copyright 2016 Paragon Real Estate Group.

New Housing Construction in San Francisco | A Spring Update

The SF Planning Department just released updated Q4 2015 information regarding the new-housing development pipeline. San Francisco is in the midst of one of its biggest new-housing construction booms in history. (The same is occurring on the commercial development side, but this report won’t deal with that.) Indeed, it often seems that new projects of one kind or another are being announced on an almost daily basis, and a detailed map delineating all projects in some stage of the pipeline makes many city districts appear to have measles.

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New housing construction has lagged population pressures for decades – pressures which have soared during the current economic and employment boom – and now there is a scramble to address the inadequacy of housing supply, and, for developers/investors, to reap the rewards of a high demand/low supply dynamic in one of the most affluent and expensive housing markets in the world. Of course, one of the questions now is at what point might new inventory succeed in fully meeting market-rate buyer and renter demand, and possibly proceed to an over-saturation point, thus significantly changing the supply and demand dynamic. Such a change, if it arrives, would certainly affect rent and price appreciation rates.

As of December 30th, there were approximately 62,000 housing units of all kinds – luxury condos, rental apartments, market rate and affordable units, and social project housing – in the relatively near-term pipeline (next 1 to 6 years). Most are in the Market Street corridor area, the Van Ness corridor above Market Street, and in the districts to the southeast of Market Street (see map). If we add the mega-projects planned for Candlestick-Hunter’s Point, Treasure Island and Park Merced, which may take decades to become a reality, the number jumps to well over 80,000. As a point of context, there are approximately 382,000 residential units in San Francisco currently. About 3500 new units were added in 2014. (We are awaiting the city’s 2015 Housing Inventory Report for the 2015 figure, but it will probably be of similar scale.)

Housing supply and affordability issues, strong feelings about neighborhood gentrification and tenants’ rights, and even simple NIMBYism (or in SF, NBMVism, “not blocking my view!”) make development the most contentious political topic in San Francisco. Furious battles are ongoing in the Board of Supervisors, the Mayor’s office and the Planning Department; with neighborhood associations and special interest groups; and at the ballot box. Development is not for the faint of heart or shallow of pocket: One cannot contemplate building virtually anything in the city without vehement opposition and sometimes a well-funded coalition in opposition. For developers, the equation to be calculated out includes very high land and construction costs, increasing affordable-housing contributions required by the city, enormous hassle-factor and extended project timelines on one side, and the potential for financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, but we are hearing from people on the development side that they can no longer pencil out building new housing in the city in a way that makes financial sense. They believe that many of the projects in the pipeline probably will not actually be built, and thus the  numbers quoted above are greatly overstated.

Of the units in the greater pipeline of 80,000 units, over 9000 units are designated as “affordable housing” – but many of those are in the long-term Candlestick-Hunter’s Point and Treasure Island projects. Because of the nature of the political environment, much to do with how much affordable housing will be built is in flux. Many developers are in intense negotiations with government agencies and neighborhood associations to find a workable compromise between return on investment on one hand, and unit mix and affordable housing requirements on the other. Said requirements may consist of a percentage of units in the project, building affordable units elsewhere in the city, or contributing substantial amounts to the city’s affordable housing fund in lieu of building.

In early March 2016, the San Francisco Board of Supervisors voted to put a city charter amendment on the June ballot, which, if passed, would hugely increase the affordable-housing contributions (in money or in affordable units built) required of developers of projects of 25+ units. Obviously, this would affect the financial equation for builders in the city. The question is will it affect their motivation to build so much as to significantly impact new home construction (market rate and affordable) in San Francisco. If you are interested, the city’s chief economist, Ted Egan, wrote a detailed report on the issue: Economic Impact Report

New housing construction is very sensitive to major economic, political and even environmental events (i.e. natural disasters), so simply because something is in the pipeline doesn’t mean it will be completed as planned within the time frame contemplated. First of all, plans are constantly being changed just in the normal course of things. And if a big financial or real estate market correction (or crash) occurs, as happened in late 2008, projects in process can come to a grinding halt, and new projects substantially altered, delayed or abandoned. Because the timeline in San Francisco can run 3 to 6+ years from initial filing with Planning to construction completion, developers and their lenders make enormous financial bets on what the future will look like. Timing is everything in real estate development, and can make the difference between large profits and bankruptcy. When the music stops – which it always does sooner or later, though the time range of opportunity can vary greatly – not everyone will find a chair to sit down in. That especially applies to those who over-leveraged their projects.

As a side note, big Chinese developers have been investing in both large residential and commercial real estate development projects in the Bay Area, and, according to reports, continue to aggressively seek additional opportunities. Though significant – constituting billions of dollars in investment – these projects do not constitute the greater part of Bay Area development.

SF Planning Department Pipeline Report

Other reports you might find interesting can be found here:

San Francisco Market Reports

San Francisco Neighborhood Values

30+ Years of San Francisco Real Estate Cycles

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate.

© 2016 Paragon Real Estate Group

San Francisco House & Condo Markets Diverge

In the first quarter of 2016, various market segments in the city began to trend in significantly different directions. Houses, especially those below $2 million, are still often selling in a frenzy of bidding: Recent reports of houses selling with 5, 10 or more competing offers are not uncommon, especially in neighborhoods considered more affordable (by San Francisco standards). Demand remains very high, supply remains extremely low, and new house construction is virtually nil.

However, thousands of new-construction condos have hit the market in recent years or are arriving shortly, with many thousands more in the 5-year pipeline. In recent years, the new supply added to the usual resale-condo inventory still did not keep up with demand, but that seems to be shifting, especially at the more expensive end of the condo market. As of early April, the number of condo listings actively for sale in MLS is up over 40% year over year, and that does not include most of the new-construction condo units hitting the market (not listed in MLS).

This does not mean that condos are not selling, because many are at top prices. But the demand-per-listing ratio is declining, multiple offers are less common, and more listings are expiring without being sold. This particularly appears to be the case in those neighborhoods where most of the new construction projects are concentrated, and, again, the luxury-condo segment appears to be most affected. Apparently, the developer rush to build large projects of very expensive condos, possibly outpacing long-term demand for such units, is also playing out in Manhattan (where admittedly luxury condos are much more expensive).

It is unclear at this point whether new condo projects themselves are being affected in their rate of sales or sales prices. These condos often go into contract during the construction phase, long before sales actually close, and access to information during that period is very limited. There can be no doubt that they comprise serious competition to resale condos in the areas they’re being built.

Please note: The data of one quarter is not definitive and Q1 was a very volatile period for the financial markets, which may have had a short-term effect that might now shift. SF is also a city of micro-markets, so what applies in one district may not apply in another. Q2, just beginning, is typically the busiest of the year, and market trends will become much clearer in coming months. Last but not least, in real estate, what we see today generally reflects the market 4 to 8 weeks ago due to the gap between listings coming on market, offers being negotiated, and sales finally closing escrow.

Market Supply & Demand Trends
by Property Type and Price Segment

It should be noted that some of the Q1 2016 MLS statistics shown below, which appear to illustrate a cooling of certain market segments in San Francisco, would in most other areas of the country often be considered signs of crazy-hot markets.

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An astonishing 84% of Q1 2016 SF house sales under $2 million sold for over asking price, a very small decline from the most active quarters of last year. The percentage for more expensive houses is 16 percentage points lower than less expensive houses, but still above Q1 2015. Condos, also shown in two price segments, have lower percentages than any time in the past 4 quarters. We shall see if those percentages rebound in Q2, as usually occurs once the spring season warms up, or whether increased inventory dampens overbidding going forward.

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The same trends seen in the first chart above apply to this illustration of the median percentage of sales price over list price over the past 5 quarters. For houses under $2 million, the median percentage over asking price remains incredibly high at 12%, a clear sign of feverish competition between buyers. In contrast, luxury condos overall sold just a tiny bit above list price (less than one half of one percent), and in those districts seeing the most high-rise, luxury condo construction, the median sales price to list price percentage fell well below list price (not shown on chart). More supply means less competition and less sense of urgency in buyers; overbidding becomes rarer and buyers negotiate more aggressively.

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Perhaps nothing is more indicative of a cooling market than increasing numbers of listings expiring and being withdrawn from the market without selling. Q1 2016 saw big jumps in expired/withdrawn condo listings over the first quarters of the previous 3 years. Many such listings end up coming back on the market at lower prices.

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Again, houses under $2 million have maintained a very high level of listings going into contract on a monthly basis. High percentages of this statistic keep inventory low even when increased inventory starts coming on market, analogous to putting food in front of a very fast, hungry eater. However, if a low percentage of listings accepting offers is coupled with increasing numbers of new listings, inventory starts mounting quickly, because more unsold listings from previous months get added on top of the additional new listings streaming onto the market. The slow-eating diner is outpaced by the delivery of new courses, and the table fills up with uneaten food.

San Francisco Median Home Sales Prices
House & Condo, by Quarter

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Chart: Median Price Trends since 1993

So far, any market cooling that has occurred is not showing up in Q1 median sales prices: Median prices for both houses and condos remain close to the high points hit in spring 2015. However, for the first time in 4 years, condo median prices did notjump in the first quarter of the year, though neither was there any significant decline.2012 to 2015, overheated spring selling seasons of very high demand and deeply inadequate supplies of homes for sale have fueled most of the home-price appreciation occurring each year in San Francisco. We shall soon know whether this trend will continue this spring, or whether the median prices of some market segments will finally plateau, or even adjust downward with changing supply and demand dynamics.

Employment Statistics

Perhaps nothing underpins an appreciating real estate market more than increasing numbers of people moving into an area to take new jobs, especially well paid ones. These charts illustrate the recent explosion of employment in San Francisco and the Bay Area. Of course, employment trends can slow or even reverse directions as occurred after the dotcom bubble burst. It is interesting to note that SF employment (and rents) fell much more after the dotcom adjustment than after the 2008 financial markets crash. On the other hand, SF home prices only temporarily dipped in 2002, while dropping rapidly in late 2008/early 2009 and then remaining depressed until the recovery began in 2012.

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Chart: SF High-Tech Employment Trends

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Stock Markets & Interest Rates

After all the travail regarding the stock market volatility since last summer, it is now, as of early April, pretty much back to where it began. And interest rates have actually fallen since the Fed raised the benchmark rate in mid-December. These conditions are typically considered very positive for real estate markets, though both can be subject to sudden and significant change.

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Chart: Short-term Interest Rate Trends


Other recent reports you might find interesting:

San Francisco New-Housing Pipeline
San Francisco Neighborhood Affordability
Seasonality & Real Estate Markets
Bay Area Housing Affordability
S&P Case-Shiller Index for SF Metro Area

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate. New construction condos not listed or sold on MLS are not counted in these statistics, though they often affect market dynamics. Sales statistics of one month generally reflect offers negotiated 4 to 6 weeks earlier, thus a fair number of YTD 2016 sales reflect market activity in late 2015.

© 2016 Paragon Real Estate Group

Updated S&P Case-Shiller Home Price Index for San Francisco Metro Area

The S&P Case-Shiller Index for the San Francisco Metro Area covers the house markets of 5 Bay Area counties, divided into 3 price tiers, each constituting one third of unit sales. Most of San Francisco’s, Marin’s and Central Contra Costa’s house sales are in the “high price tier”, so that is where we focus most of our attention.” The Index is published 2 months after the month in question and reflects a 3-month rolling average, so it will always reflect the market of some months ago. The Index for January 2016 was released on the last Tuesday of March 2016. It mostly reflects the market in late 2015.

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The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa. (And we believe the Index generally applies to the other Bay Area counties as well.) There are many different real estate markets found in such a broad region, and it’s fair to say that the city of San Francisco’s market has generally out-performed the greater metro-area market.

These 5 charts below illustrate the price recovery of the Bay Area high-price-tier home market over the past year and since 2012 began, when the market recovery really started in earnest. In 2012 – 2015, home prices dramatically surged in the spring (often then plateauing or even ticking down a little in the following seasons). The surges in prices that have occurred in the spring selling seasons reflect frenzied markets of high buyer demand, low interest rates and extremely low inventory. In San Francisco itself, it was further exacerbated by a rapidly expanding population and the high-tech-fueled explosion of new, highly-paid employment and new wealth creation. International and national financial markets volatility rose and fell in early autumn 2015 and again in early 2016. At this point, we are waiting for the data from new spring selling season to start arriving, which will occur over the next few months. Then we will start getting an idea of where the market is heading in 2016.

For more regarding how seasonality affects real estate: Seasonality & the Real Estate Market .

Case-Shiller Index numbers all reflect home prices as compared to the home price of January 2000, which has been designated with a value of 100. Thus, a reading of 220 signifies home prices 120% above the price of January 2000.

Short-Term Trend: Past 12-14 Months

Note that short-term fluctuations are much less meaningful than longer-term trends.

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This chart below highlights the highly seasonal nature of home price appreciation over the past 4 years.

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Longer-Term Trends & Cycles

The first two charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco, Marin, San Mateo and the most affluent portions of other counties), showing the cycle of recession, recovery, bubble, decline/recession since 1996, and since 1988. Note that, past cycle changes will always look smaller than more recent cycles because the prices are so much higher now; if the chart reflected only percentage changes between points, the difference in the scale of cycles would not look so dramatic (as seen in the third chart below).

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Longer-Term Trends & Cycles

The first two charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco, Marin, San Mateo and the most affluent portions of other counties), showing the cycle of recession, recovery, bubble, decline/recession since 1996, and since 1988. Note that, past cycle changes will always look smaller than more recent cycles because the prices are so much higher now; if the chart reflected only percentage changes between points, the difference in the scale of cycles would not look so dramatic (as seen in the third chart below).

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Different Bubbles, Crashes & Recoveries

This next 3 charts compare the 3 different price tiers since 1988. The low-price-tier’s bubble was much more inflated, fantastically inflated, by the subprime lending fiasco – an absurd 170% appreciation over 6 years – which led to a much greater crash (foreclosure/distressed property crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries. The mid-price-tier is just now back to its previous peak values, but the low-price-tier is still well below its artificially inflated peak value of 2006. It may be a long time before the low-price-tier of houses regains its previous peak. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, has now significantly exceeded its previous peak values of 2007. Most neighborhoods in the city of San Francisco itself have now surpassed previous peak values by very substantial margins.

Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers though, generally speaking, you will find all 3 tiers represented in different degrees in each county. Bay Area counties such as Alameda, Contra Costa, Napa, Sonoma and Solano have large percentages of their markets dominated by low-price tier homes (though, again, all tiers are represented to greater or lesser degrees). San Francisco, Marin, Central Contra Costa, San Mateo and Santa Clara counties are generally mid and high-price tier markets, and sometimes very high priced indeed. Generally speaking, the higher the price, the smaller the bubble and crash, and the greater the recovery as compared to previous peak values.

Remember that if a price drops by 50%, then it must go up by 100% to make up the loss: loss percentages and gain percentages are not created equal.

Low-Price Tier Homes: Under $562,000 as of 1/16

Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery but still well below 2006-07 peak values.

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Mid-Price Tier Homes: $562,000 to $900,000 as of 1/1

Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline) than low-price tier. A strong recovery has put it back up to its previous 2006 peak.

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High-Price Tier Homes: Over $900,000 as of 1/16

84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.

Now climbing well above previous 2007 peak values.

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High Price Tier vs. Low Price Tier Appreciation
2012 to Present

The more affluent neighborhoods led the city and the Bay Area out of recession in 2012, surging quickly, while the lower priced tier, still trying to recover from the huge distressed property/foreclosure crisis, lagged well behind. That dynamic shifted: the low-price tier caught up in 2013-2014, and lately it has been appreciating more quickly than the other segments.

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In San Francisco, where many neighborhoods vastly exceed the initial price threshold for the high-price tier, declines from peak values in 2007 in those more expensive neighborhoods typically ran 15% – 20%, and appreciation over previous peak value has also exceeded the high-price tier norm.

San Francisco, Marin and Central Contra Costa
Median Sales Price Trends

Looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area (and the country): many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices. This chart shows both house and condo values, while the C-S charts used above are for house sales only. Median prices are affected by other factors besides changes in values, including seasonality, new construction projects hitting the market, inventory available to purchase, and significant changes in the distressed and luxury home segments.

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Marin County

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Central Contra Costa County

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And this chart for the Noe and Eureka Valleys neighborhoods of San Francisco shows the explosive recovery seen in many of the city’s neighborhoods, pushing home values far above those of 2007. Noe and Eureka Valleys have become particularly prized by the high-tech buyer segment and the effect on prices has been astonishing.

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US and San Francisco Economic Trends

A selection of charts looking a various angles of current economic trends in the United States and San Francisco. For the past 50 years, the San Francisco and Bay Area housing markets have only “crashed” in tandem with a large, national, negative macro-economic event. Which is why it’s useful to look at important U.S. trends on issues such as employment, household debt, and stock market price to earnings ratios, as well as those trends that are more local.

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Daylight Savings Tips! (an infographic)

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Source : Parascopesf.com

San Francisco Real Estate Market Report (including 13 custom charts)

Monthly and seasonal fluctuations in median sales prices are quite normal and do not necessarily say much about changes in fair market values. For that one must look at longer-term trends. However, for what it is worth, the median price in February was the highest since it peaked in May of 2015. If this spring is like the past 4 springs in which a very-high-demand/ very-low-supply dynamic prevailed, then sustained home-price appreciation may start showing up in the statistics during the next few months.

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Chart: Median Price Trends since 1993

Chart: Case-Shiller Metro Area Home Price Index

We say this very preliminarily since the 2016 market has just gotten started after the holiday doldrums, but it appears that San Francisco homebuyers are generally shrugging off the recent volatility in the stock market. That doesn’t necessarily mean there will be a repeat of the overheated markets of the past few years. Much more will be known once the spring selling season really gets into full swing.

San Francisco Construction Boom Continues

Q4-2015_Pipeline_Under-Construction-Permitted-SubmittedDevelopers continue to add projects with thousands of new units to the San Francisco new-housing pipeline. If they are built as currently planned (as of Q4 2015), the city should add over 60,000 new housing units (market-rate condos and apartments, and affordable and social-project housing) over the next 5 to 6 years, with another 25,000 in 3 huge projects that may take decades to complete. However, new developments are being constantly added to the pipeline, and existing plans are regularly altered. They may even be abandoned if economic or political conditions dramatically change.

So far, increased supply due to completed new construction has not created significant downward pressure on prices. This may change as construction completion accelerates in coming years, however almost all of the market-rate development is directed toward the more (or most) expensive end of the condo and apartment market. House sales will continue to become a smaller and smaller percentage of the SF market, which may play a role in enhancing their values.

Our full article: San Francisco Housing Pipeline

Where to Buy a Home in San Francisco for the Money You Want to Spend

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The charts above are 3 of 8 in our updated report: San Francisco Neighborhood Affordability

Seasonality & the Spring Market

Overbidding by Month

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Luxury Home Listings Accepting Offers by Month

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The San Francisco real estate market is deeply affected by seasonality, which shows up in the rise and fall of inventory, buyer demand, overbidding and median prices. For the past 4 years, spring has experienced the most feverish buyer competition for new listings, which led to the highest overbidding percentages, as seen in the first chart above. (111% signifies an average sales price 11% over the asking price.) In February 2016, the percentage over list price started climbing again after the usual slowdown of the winter holidays.

The luxury home segment is even more dramatically affected by seasonality than the general market. As seen in the second chart above tracking accepted offers, expensive home sales typically soar to their high point in spring, drop during the summer holidays, rebound for the relatively short autumn season, and then plunge deeply in mid-winter. This ebb and flow of high-end sales is one of the factors behind short-term, seasonal ups and downs in median sales price. So far in 2016, luxury home closings have been comparable to early 2015, but we are just entering the main selling season now.

Our full overview: Seasonality & the SF Real Estate Market

Mortgage Interest Rate Trends

Short-Term Changes since the Fed Raised Rates

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Chart: Long-Term Interest Rate Trends

Since the Federal Reserve Bank raised the benchmark interest rate in mid-December, interest rates have actually dropped by about 8% (as of March 3), which makes a significant difference in monthly mortgage costs and loan underwriting qualification. This downward pressure on rates is generally ascribed to the dramatic volatility in the stock market since the year began. (Investors often pour money into bonds in times of stock market volatility, which then lowers the interest rate.) It is famously difficult to predict interest rate movements, which can be sudden and dramatic, but for the time being, they are getting closer to the all-time low in 2013. That is good news for the real estate market, while it lasts.

Bay Area Housing Affordability by County

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Chart: Long-Term Trends in Housing Affordability

Housing affordability is one of the biggest political issues in the city and the Bay Area. The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 4th quarter of 2015, and above are 3 of 10 charts in our updated analysis. San Francisco is now 3 percentage points above its all-time low of 8%, last reached in Q3 2007, however there has not yet occurred the convergence in extreme low affordability across Bay Area counties seen in 2007. Interest rates play a big role in affordability calculations and, as noted earlier, they have been falling in 2016.

Our full report: Bay Area Housing Affordability

San Francisco & U.S. Rents

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Chart: Long-Term SF Rent Trends

Despite ticking down a tiny bit at the end of 2015, San Francisco rents remain the highest in the nation. Since rents are not ameliorated by low interest rates and the numerous tax advantages pertaining to homeownership, new renters in the city bear the worst brunt of the housing affordability crisis, even more so than new homebuyers. A number of large, new rental apartment buildings have recently been coming on the market and many more are planned. This new inventory may eventually help provide significant rental-rate relief, however almost all the market-rate projects being built feature luxury apartments priced at the very high end: New studio units can rent for $3500 per month and more.