540 Beach Drive
Aptos, CA 95003
Offered at $2,100,000
For more information about this property or a referral to other areas of Northern California, please contact me.
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. The Index for February 2015 was released on the last Tuesday of April.
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 2012, 2013 and 2014, home prices surged in the spring and then plateaued in the summer-autumn. The surges in prices that occurred in the springs of 2013 and 2014 were 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 employment and new wealth. As we the Case-Shiller Index begins to reflect the beginning of the spring 2015 market, significant price increases appear to be kicking in again, which mirrors what we are currently seeing on the ground in the hurly burly of deal-making.
Right now, we expect for the Case-Shiller Index reports for the next 2 to 3 months – reflecting March, April and May sales activity – to show further increases.
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 202 signifies home prices 102% above those of January 2000.
Short-Term Trends: 12 Months & Since Market Recovery Began in 2012
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.
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, 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 now 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 February 2015, this range has narrowed to 99% to 102% over year 2000 prices. 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 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, 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 numbers in the charts refer to January Case-Shiller Index readings, except for the last, which reflects December 2014.
Low-Price Tier Homes: Under $529,000 as of 2/15
Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash (60% decline, 2008 – 2011). Strong recovery but still well below 2006-07 peak values.
Mid-Price Tier Homes: $529,000 to $859,000 as of 2/15
Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline) than low-price tier. Strong recovery but still somewhat below 2006 peak.
High-Price Tier Homes: Over $859,000 as of 2/15
84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Now climbing well above previous 2007 peak values.
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 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.
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.
Many of the charts included in this report are based on or excerpted from the San Francisco Planning Department’s 82-page 2014 Housing Inventory report, released in April 2015, which can be accessed using the link at the bottom of this article. Much of the text below detailing housing-inventory statistics is excerpted from this report as well.
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 reality is that the city, after its recent 2008-2012 new-construction slump, is now experiencing a huge building boom. So far, however, it has not been able to keep up with accelerating population growth, soaring employment and concomitant surging buyer/renter demand.
“The production of new housing in 2014 totaled 3,654 units, a 50% increase from 2013. This includes 3,454 units in new construction and 200 new units added through conversion of non-residential uses, alterations to existing units or buildings, or expansion of existing structures. Some 140 units were lost through demolition (95), unit mergers (20) and removal of illegal units (24).
“Some of the larger projects completed in 2014 include: 1411 Market Street/NEMA Phase II (437 market-rate units and 52 affordable inclusionary units), 185 Channel Street (315 market rate units), Rincon Hill Phase II (312 market rate units).The 1190 4th Street (100% affordable 150 units) and St. Anthony Foundation’s 121 Golden Gate Avenue (100% affordable 90 senior housing units) are two major affordable housing projects completed in 2014.”
“The Planning Department approved and fully entitled 57 projects in 2014. These projects propose a total of 3,756 units. In 2014, 3,834 units were authorized for construction. This represents a 21% increase from 2013. New housing authorized for construction over the past five years continues to be overwhelmingly (90%) in buildings with 20 or more units. In 2014 the average project size was 16 units.”
“Some of the major projects authorized for construction during the reporting year include: 2801 Brannan Street (434 units); 3350 8th Street (408 units); 250 4th Street (208 units); and 588 Mission Bay Boulevard (200 units).”
“In 2014, 269 projects with about 8,030 units were filed with the Planning Department. This number is higher than the count in 2013 by 66% and is a little over double that of the five year average of almost 3,690 units.
Residential Development by City District
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 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 & Commercial Development Pipeline Report. Below is one chart from this report.
There are over 50,000 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 and Hunter’s Point/Shipyard) may take decades to complete.
Construction vs. Conversion
“Thirty-three single-family units were added in 2014: Single-family building construction made up a very small proportion of new construction in 2014 (1%).” Very few new houses are built in San Francisco, as developers prefer to build higher density housing projects on our limited supply of land. The houses that are built are typically big and expensive.
“New condominium construction in 2014 dropped to 1,977 units from 2,586 units in 2013. Condominium conversions were up by 98% in 2014 (730 from 369 conversions in 2013). This number is 20% higher than the 10-year average of 606 units.” The rules governing condo conversion in San Francisco are byzantine, politically-wrought and, seemingly, ever-changing, and the changes affect the ability to convert existing multi-unit properties and TICs into condominiums. .
Affordable Housing Construction
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, but that’s the general idea.) There are few subjects more politically charged in San Francisco than affordable housing: how much should be built where and who should be responsible for the costs.
“In 2014, 757 new affordable housing units were built. These new affordable units made up 21% of new units added to the City’s housing stock. This count includes 267 inclusionary units and 59 units added to existing structures. About 83% of the new affordable units are rentals affordable to very-low and low-income households.” These 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.
“In 2014, a total of about $30 million was collected from developers as partial payments of in-lieu fees for projects.”
Major affordable housing projects completed in 2014 include: 1190 4th Street (150 units); 121 Golden Gate Avenue (90 units); 378 5th Street (44 units); 833-871 Jamestown Avenue (96 units); 1600 Market Street (23 units); and 63 West Point Road (15 units).
Housing Units Demolished, Merged and Abated
“Dwelling 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. The net gain of 155 units from alterations in 2014 is comprised of 200 units added and 45 units eliminated.”
The Context behind San Francisco New-Housing Development
Population, Employment, New Supply vs. Demand
What ultimately underpins new housing construction is demand. San Francisco is seeing surging population and employment that has been far outpacing new supply. Below are 3 charts we made up plus one from the CA Legislative Analyst’s Office.
Insufficient Housing = Increasing Prices & Rents
Below are two of our charts illustrating the white hot rental and sale markets in San Francisco, which are motivating investors and developers to build new homes, and motivating the city and non-profits to try and accelerate the construction of affordable housing units as well.
New Housing Construction by Bay Area County
As can be seen below, Santa Clara has taken the lead in new home construction in the Bay Area. “In 2014, Bay Area counties authorized 21,090 units for construction, 8% more than the 2013 authorizations of 19,551 units. In San Francisco, 98% of new housing is in multi-family buildings.”
SF Housing Stock by Building Size
Condo Values by Era of Construction
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. This is the major motivator for developers today.
Housing Unit Construction by Bedroom Count
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. The city plan appears to have a bias for 2-bedroom units, which it designates as “family units” – this may be an anachronism considering that 38% of city residents live alone and that SF has the lowest percentage of children of any major U.S. city.Lately there has been a push by developers (and some housing advocates) toward smaller or even “micro” units, but other segments in the decision-making chain in the city, such as supervisors and neighborhood community groups, often push back against allowing this trend to gain traction in the city.
The politics of new home development in San Francisco is not for the weak of heart. There are very, very strong opinions and pressures regarding how it should best proceed.
San Francisco Planning Department
Pipeline & Housing Inventory Reports
Below are links to the SF Planning Department Pipeline and Housing Inventory report webpages. They contain 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.”
And this image-link goes to a flowchart of the Planning Department’s
review and approvals process:
This report was created in good faith and is based on data from sources deemed reliable,
but may contain inadvertent errors and misrepresentations, and is subject to revision.
© April 2015 Paragon Real Estate Group
774 Fair Oaks Dr
Alamo, CA 94507
Offered at $1,700,000
For more information about this property or a referral to other areas of Northern California, please contact me.From our NorCal network : The Artisan Group
First some context: For the last 15 years, the number of MLS home sales in San Francisco has ranged from 4663 in 2009 to 7887 in 2004, with an average of 6115 per year. In 2014, MLS sales numbered 6120. Sales outside of MLS have increased as the market has become hotter (for both legitimate and not-so-good reasons), and non-MLS new-condo sales have also increased. These 2 categories of sales would swell the 2014 total.
From another angle, studies have estimated that on average about 5% of U.S. owner-occupier homeowners sell annually. According to the census, there are approximately 125,000 owner-occupied housing units in SF: 5% would equal 6250 home re-sales per year. Sales of tenant-occupied homes and new construction condos would be additional.
The numbers of new listings and home sales in San Francisco are certainly lower than expected in such a hot market and some of the subsidiary reasons are discussed at the end of this analysis. However, as seen above, annual sales numbers are not wildly out of whack from historical trends.
The principal factor behind the perception of drastically low inventory is simply hugely increased demand: Over the past 5 years, the city’s population and employment rolls have soared, while new housing construction has not remotely kept pace. Higher demand means homes sell more quickly, which then shrinks the number of listings on the market at any given time (which is really how we perceive supply). An analogy: The water hole (of listings for sale), fed by a relatively constant stream (of new listings coming on market), still gets significantly diminished as more people drink from it.
Below are 3 charts illustrating the issue. The first two, regarding days-on-market and percentage of listings accepting offers, are based on actual SF market statistics. The third chart is a sample illustration of the effect of increasing demand on the supply of homes for sale, even if the number of new listings coming on market doesn’t decline.
Chart 1: New listings are selling much faster.
Chart 2: The percentage of listings selling each quarter has significantly increased.
Chart 3 (sample illustration): Higher demand – even with a constant number of new listings coming on market – dramatically decreases the inventory of homes for sale at any given time.
There certainly are other, distinctive factors exacerbating our low inventory market:
1) As noted earlier, with the frenzied market, more sales have been occurring off-MLS, and these homes don’t show up as new listings in the public inventory for sale. (The Pros & Cons of Off-MLS Listings)
2) Annual sales of TIC units and 2-4 unit buildings have plunged in the last 7 years by over 500 sales, a substantial drop in an overall market of San Francisco’s size. This is probably due mostly to changes in SF tenant eviction and condo conversion laws. (Note: TIC units are a property type found virtually no place else but the city.)
3) With extremely high rental rates and extremely low mortgage interest rates, a small but growing percentage of homeowners, who typically would have sold their homes, are renting them out instead – and the Airbnb vacation-rental phenomenon (with even higher rent rates) can only be adding to this. (Renting vs. Selling One’s Home)
4) Unless they’re moving out of the area, some potential sellers are daunted by the challenge of finding new homes under existing market conditions and are simply staying put until things calm down.
5) A sizeable percentage of our new (mostly very high-end) condos are being purchased as second homes by the locally affluent or as investments by foreign buyers. These non-resident buyers add to demand and help soak up supply, and for a number of reasons, may not sell as often as typical homeowners.
In many counties other than San Francisco, the big decline in distressed property sales has affected inventory and sales.
The factors above are all probably diminishing listing inventory to greater or lesser degrees, but ultimately, it’s not that the annual number of new listings – i.e. the number of homeowners selling – is so drastically low by historical measures. It’s the relationship between supply and demand that fundamentally determines market conditions, and for the last 3 years, a relatively stable supply has become terribly inadequate to a dramatically escalating demand.
This, of course, is the classic dynamic which puts upward pressure on home prices.
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 should be considered approximate. Please contact us with any questions or concerns.
2200 Lands End
Glenbrook NV, 89413
Offered at $6,300,000
For more information about this property or a referral to other areas of Northern California, please contact me.From our NorCal network : The Artisan Group