Case-Shiller sees small drop in Bay Area home prices in July – 3 charts included

The S&P Case-Shiller Home Price Index for July 2014 was released today, and indicated a small – less than 1% – dip in high-price-tier houses. (The Case-Shiller aggregate Index for all Bay Area home price tiers dropped even less, about 4 tenths of a percent.)

For the past 3 years, home prices have surged in the spring and then plateaued during the summer. It is too early to speculate whether home prices are trending down a bit after the spring market frenzy, which is certainly possible. For any definitive sense of home price trends, we will have to wait until the autumn-selling season numbers are in. Autumn this year began with a big surge in the number of new listings in September.

Remember that the C-S Index covers not just San Francisco, but 4 other Bay Area counties and is a 3-month rolling average. San Francisco makes up a very small part of all the house sales being surveyed by the Index and C-S home prices reflect offers negotiated in previous months – thus the June 2014 peak reflects the heat of the market in the heart of the spring 2014 selling season.

The last 13 months, July to July:

The small dip in July 2014 from the spring peak can be seen. Small fluctuations up and down are not particularly meaningful until substantiated by longer term data.

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Since the recovery began in earnest in early 2012.

One can see the two previous summer price plateaus (and, now perhaps the beginning of a third) after spring surges:

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Longer-term overview of real estate cycles:

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2950 Trinity Road
Glen Ellen, CA
Offered at $1,695,000

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333 Corrie Place, Alamo
Offered at $7,499,000

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1362 21st Avenue

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687 Tyner
Incline Village, 89451
Offered at $1,950,000

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Autumn Selling Season Begins & New Listings Surge in San Francisco

Coming out of the summer slowdown, the last big sales season of the year runs from early September to mid-November (when the market usually retreats into semi-hibernation until mid-January). September is typically the single month with the highest number of new listings and this year, it started out with a bang: 300 new listings hit the market in the first week after Labor Day. As a point of comparison, May, the biggest new-listing month YTD, had a total of 720.

A list of San Francisco’s most recent listings can be found here, easily sortable by neighborhood, property type and price: New Home Listings

This year’s summer slowdown was bigger than usual: Compared to 2013, the number of listings coming on market dropped 12% and the number of sales fell 16% – these are large drops. Median sales prices also declined significantly from the spring peak, but summer price drops are normal due to seasonal factors. We’ve found it difficult and risky to make confident assessments of market trends during the summer or winter holiday slowdowns: One really has to see what happens in spring and autumn when sellers and buyers jump back in.

San Francisco, California & United States Markets

SF-US-CA_MSI-DOM-MP_Comp

This chart compares Months Supply of Inventory (MSI) – a measurement of buyer demand against the supply of homes for sale; median Days on Market (DOM) – how quickly new listings go into contract; and median home sales prices, for the city, state and country. Typically, an MSI under 3 to 4 months is considered a seller’s market; at an average of 1.5 months of inventory over the summer, San Francisco would typically be considered an extreme seller’s market (which puts upward pressure on prices). San Francisco’s median days-on-market figure is also extraordinarily low, and of course, our home prices are significantly higher than most places on the planet.

Not shown on the chart, but another dramatic indicator of market conditions: Over the last 3 months the average SF home sale closed for 7% over the original asking price. (It hit 10% in May at the height of the spring frenzy.)

10 Factors behind the San Francisco Real Estate Market

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San Francisco Home Sales by Property Type & Price Range

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Unit-Sales_Price-Range_Prop-Type

Unlike the vast majority of other counties, condos and condo-like homes such as co-ops and TICs now predominate in the SF homes market, a trend that will only accelerate as dozens of (expensive) new-condo projects come on line in coming years. The difference in median sales prices between houses and condos has also narrowed to less than 12% – when condos used to be the significantly cheaper alternative. Condos also play a huge role in luxury home sales, often selling for the highest dollar per square foot figures in the city. TIC sales, almost an exclusively SF phenomenon, have been dwindling, but now sometimes command prices in excess of $1,500,000.

The relatively small quantity – and declining percentage of sales – of house listings in San Francisco has put significant competitive pressure on house prices. This effect has been cascading through the city’s neighborhoods, from most desirable to historically less desirable, as families search for affordable options in a rapidly appreciating market. Very, very few new houses are being built in the city and those that are, are typically very costly.

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Seasonality & the SF Real Estate Market

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Seasonality_Listings-Accepting-Offers

In August we completed an analysis of how seasonality affects inventory, buyer demand and median sales prices. These 2 charts illustrate its effect on listings accepting offers and prices. Please note that other factors besides changes in values can affect median price fluctuations. For the complete report: Seasonality & Real Estate

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San Francisco Neighborhood Home Prices

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We recently issued our semi-annual breakdown of San Francisco home sales by neighborhood, property type and bedroom count. This table is for 3-bedroom houses. For our complete analysis (8 tables): SF Neighborhood Values

For our updated map of home values around the Bay Area: Bay Area Map

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Selected Neighborhood Snapshots

Long-term Trends in San Francisco Home Values

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From our NorCal network : The Artisan Group

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167 Arends Drive
Danville, CA, 94506
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1657 Via Romero
Alamo, CA
Offered at $2,449,950

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1973 Filbert Street
San Francisco, CA 94123
Offered at $6,300,000

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

The 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 the San Francisco’s and Marin’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. June’s Index was released on the last Tuesday of August.

The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa. Needless to say, there are many different real estate markets found in such a broad region, and it’s probably fair to say that the city of San Francisco’s market has generally out-performed the general metro-area market.

The first two charts 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 both 2012 and 2013, home prices surged in the spring and then plateaued in the summer-autumn. The surge in prices that occurred in spring of 2013 was particularly dramatic, reflecting a frenzied market of huge buyer demand, historically low interest rates, increasing consumer confidence and extremely low inventory. In San Francisco itself, it was further exacerbated by an expanding population and the high-tech-fueled explosion of new wealth. The market then calmed down somewhat in the second half of 2013, but then heated up yet again in early 2014. In fact, the spring 2014 market was, if anything, even more ferocious than last year’s. Typically, the market cools off for the summer months and that is what we are starting to see in the Case-Shiller numbers (which, again, are some months behind the current market). The next big indication of market trends will come after the autumn selling season begins in mid-September.

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 198 signifies home prices 98% above those of January 2000.

Short-Term Trends: 12 Months & Since Market Recovery Began in 2012

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Longer-Term Trends & Cycles

The third and fourths charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco and Marin 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.

Case-Shiller_from_1990 Case-Shiller_HT_1996-2011

Different Bubbles, Crashes & Recoveries

This next chart compares the 3 different price tiers since 2000. 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 crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries, but because the bubbles of the low and middle tiers were greater, their recoveries leave them well below their artificially inflated peak values of 2006. It may be a long time before the low-price-tier of houses regains its previous peak values. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, has now exceeded its previous peak values of 2007. Most neighborhoods in the city of San Francisco itself have surpassed previous peak values by substantial margins.

It’s interesting to note that despite the different scales of their bubbles, crashes and recoveries, all three price tiers now have similar overall appreciation rates when compared to year 2000. As of May 2014, as seen below, appreciation for all three tiers since 2000 ranged from 93% to 97%. In June (not shown below), this range narrowed further to 96% to 98%. This suggests an equilibrium is being achieved across the general real estate market.

Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers. 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 all tiers are represented to greater or lesser degrees). San Francisco, Marin, 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.

The two “2014″ readings for each tier in the chart below, refer to January 2014 and May 2014.

Case-Shiller_3-Tiers_Trends

San Francisco County

And then 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 constructions, inventory available to purchase, and significant changes in the distressed and luxury home segments. Short-term fluctuations are less meaningful than longer term trends.

Median_SFD-Condo_by-Qtr_Short-term

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. San Francisco, San Mateo and Santa Clara counties are most effected by the high-tech wealth effect on home prices. Noe and Eureka Valleys are particularly prized by this buyer segment and the effect on prices has been astonishing.

Noe-Eureka_SFD_Avg-SP_DolSqFt_by_YEAR