From our NorCal network : The Artisan Group

2_40687546_Twilights_031

6601 Elverton Drive
Oakland, CA 94611
Offered at $1,875,000

For more information about this property or a referral to other areas of Northern California, please contact me.

Renting vs Buying a Home in San Francisco

“Renting can make sense as a lifestyle choice or because of income constraints.
As a means to building wealth, however, there is no practical substitute for homeownership.”

New York Times, “Homeownership & Affluence,” 11/30/14 op-ed article

Please Note: Rent vs. buy calculations can be performed a wide variety of ways, and results will depend on your own financial circumstances and economic projections, which you should review with your accountant. The below calculations represent simply one scenario.

This rent vs. buy analysis compares the monthly housing cost of buying a San Francisco home at the Q4 2014 median sales price of $1,050,000 – adjusting for tax deductions and principal pay-down of the mortgage – with the cost of renting a San Francisco 2-bedroom apartment at the Q4 2014 median asking rent of approximately $4500/month (per Rentbits.com). It also attempts to compare, while adjusting for inflation and other factors, projected asset appreciation between investing the downpayment monies (instead of buying a home) and using them in one’s home purchase.

Assumptions: 20% down-payment ($210,000); 30-year fixed-rate loan at an APR of 4%; and closing costs; property taxes; ongoing insurance and maintenance costs; annual inflation (2%), outside investment returns (3% after taxes) and home appreciation rates (5%) – all at what seem to us to be reasonable projections. We’ve used a combined income tax rate of 25% for the mortgage interest and property tax deduction. But especially when projecting variable economic factors over long periods of time, many of these figures will simply be best guesstimates. You may perform calculations based upon your own specific financial situation and future projections, and also see the definitions for all the terms used in this analysis here:

Rent vs. Buy Calculator

The New York Times also has a rent vs. buy calculator:

NYT Rent vs. Buy Calculator

2-15_Rent-vs-Buy_Medians-Comp_A 2-15_Rent-vs-Buy_Medians-Comp_A2

2-15_Rent-vs-Buy_Medians-Comp_B 2-15_Rent-vs-Buy_Medians-Comp_C

2-15_Rent-vs-Buy_Medians-Comp_C2 2-15_Rent-vs-Buy_Medians-Comp_D

If you wished to perform this analysis comparing a 1-bedroom apartment rental with a 1-bedroom condo purchase, the median San Francisco asking rent would be approximately $3300 to $3400 per month, and the median purchase price in Q4 2014 was about $740,000. Interestingly, the ratio of median asking rent to median purchase price is almost exactly the same as in the scenario used above. If you currently have an SF apartment under rent control, you can still use the calculator, plugging in your current rent – annual increases in rents allowed under SF rent control are typically about 60% of the CPI inflation rate.

Other articles you might find interesting:

When Is the Time to Buy?

Home Buying as an Investment

10 Factors behind the San Francisco Market

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. The Index for December was released on the last Tuesday of February.

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 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 the previous year (at least in San Francisco).

After the feverish spring market of 2014, home prices in the high-price tier flattened and then ticked down a little, while more affordable home segments   continued to tick up. It’s not unusual for the market to cool off and plateau during the summer months. The Case-Shiller Index reports released at the end of December, January and February reflect the autumn selling season, which starts after Labor Day. (Note that transactions negotiatedin September generally start closing in October.) According to the Index, Bay Area home prices ticked up in the 3 months at the end of 2014 by about 1%, plus or minus depending on price tier — i.e. prices remained basically flat. Note that small monthly fluctuations are not particularly meaningful until substantiated over a longer term.

We are currently waiting to see what the spring market of 2015 will be like, but initial indications point to another feverish market of extremely low supply against highly competitive buyer demand.

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 199 signifies home prices 99% 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.

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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 October 2014 (not shown below), this range has narrowed to 98% to 99%. 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. We will update this chart in late March 2015 when the January 2015 Index is released.

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And this chart compares home price appreciation since the recovery began in 2012 for the low-price and high-price tiers. As one can see the two tiers have come together in 2014.

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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.

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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. 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.

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From our NorCal network : The Artisan Group

2_40686992_01_Front3

620 Gravatt Drive
Berkeley, CA 94705
Offered at $1,750,000

For more information about this property or a referral to other areas of Northern California, please contact me.

SoMa-South Beach-Yerba Buena-Mission Bay

Many more condos are sold in the South Beach/ Yerba Buena/ South of Market (SoMa)/ Mission Bay neighborhoods of San Francisco than any other area of the city, and since new construction is surging here, that trajectory will only continue. The market here is quite hot pursuant to the same trends as the city as a whole: high demand, low inventory, rapidly appreciating prices. The great majority of condos that are sold have been selling without any price reductions and averaging a sales price over asking price.

Since opening our doors in 2004, Paragon has transacted over $800 million in business in these neighborhoods, acting as agent in over 950 sales and leases.

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South of Market (SoMa District) Condo Values

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Luxury Condo Sales in Greater SoMa-South Beach Area

Sales of luxury condos in this area have been soaring and often sell for among the highest dollar per square values in the city, especially upper units with spectacular views in buildings such as the Millennium and Four Seasons.

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San Francisco Luxury Condo Sales, $1,500,000 & Above

As one can see in this chart, the greater South Beach-SoMa area has a large and growing footprint in the luxury condo market segment in San Francisco.

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Sales reported to MLS 6/1/14 – 2/15/15. When identified, outlier sales that distort the average $/sq.ft. value were deleted. Below Market Rate (BMR) units were excluded from this analysis. Median and average statistics often conceal wide varieties of values in the underlying individual sales – and how they apply to any particular property is unknown without a specific comparative market analysis. Data from sources deemed reliable, but may contain errors and subject to revision.

* When only a small number of sales report square footage, the average dollar per square foot value is less reliable.

From our NorCal network : The Artisan Group

4379369

3999 Beach Road
South Lake Tahoe, 96150
Offered at $2,895,000

For more information about this property or a referral to other areas of Northern California, please contact me.

Home Sales by San Francisco District and Price

These charts show the breakdown of San Francisco home sales as reported to the city’s Multiple Listing Service for periods of 6 to 8 months ending January 31, 2015. We picked this period because, generally speaking prices stabilized after the frenzy and rapid price appreciation of the spring 2014 market. These analyses are sorted by city districts and neighborhoods by the number of transactions in different sales-price segments. Note that median sales prices will change every time the time period or neighborhoods included in an analysis change.

The first chart below the San Francisco neighborhood map is an overview for the entire city.

San_Francisco_Neighborhood_Map

Unit-Sales_Price-Range_Prop-Type

District_7_Sales-by-Price-Range

Russ-Nob-Tel_Condos_by-Price-Range

District_5-Price-Range

SOMA-SB-YB-MB_Sales-by-Price

Potrero-Bernal-Mission-Price-Range

SeaCliff-Lake-Jordan-Laurel_Sales-by-Price-Range

Richmond-Lone-Mtn_Sales-by-Price-Range

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District-4_A_Sales_by_Price-Range

District_4-B_Price-Range

District_2_Sales-by-Price-Range

District_10_Sales-by-Price-Range

District-3_Sales-by-Price-Range

These 2 charts below track San Francisco luxury home sales by price range and neighborhood for the full year of 2014. Rather arbitrarily, we designate the luxury segment as those condos, co-ops and TICs selling for $1,500,00 or more, and those houses selling for $2,000,000 and above. Considering the appreciation of the market in recent years, we may have to adjust those thresholds soon.

2014_SF-Condo-Sales_1500k-plus 2014_SF-House-Sales_2m-plus

From our NorCal network : The Artisan Group

98551

687 Tyner
Incline Village, 89451
Offered at $1,799,000

For more information about this property or a referral to other areas of Northern California, please contact me.

The San Francisco Real Estate Market

Median Sales Prices, Neighborhood Values, Seasonality & Demand,
Condo Construction, New SF “Airbnb” Law, Appreciation vs. Inflation

February 2015, Paragon Real Estate Group

The market just begins to wake up in January, so its statistics are not particularly illuminating. The last 3 springs in San Francisco saw frenzied markets, which took its home values to new heights. While waiting to see what develops in 2015, this report will drill down on other angles of our distinctive real estate market.

Note: On February 1st, San Francisco’s new short-term residential rental ordinance, the so-called “Airbnb law,” went into effect. In order to legally rent out your home for less than 30 days, there are a number of requirements pertaining to registration, insurance, advertising and taxes, as well as limitations on such rentals. Information and forms can be found here: SF Planning Department.

San Francisco Median Sales Prices, 1993 – 2014

1993-2010_SF_Median_Sales_Prices

Unit Sales Trends by Property Type

1994-Present_Unit-Sales-SFD-Condo-TIC

The first chart above graphs median sales prices by year. Looking only at the 4th quarter of 2014, house and condo median prices climbed to all-time highs of $1,125,000 and $999,250 respectively, and the TIC median price increased to $829,500.

The second chart above illustrates sales volume by property type. Houses turn over much less often than condos or TICs – i.e. house owners generally live in their homes longer before selling – and with virtually no new houses being built in the city, house sales as a percentage of total sales are declining, but this has also made them the market’s highest-demand, most competitive segment. Condos now dominate SF home sales and will continue to do so with the many new-condo projects being built. TIC sales are down almost 60% from 2007, probably due to financing conditions and changes in condo conversion and tenant eviction laws. The number of listings fell last year putting additional pressure on the market.

San Francisco New Construction & Population Trends since 1940

After reading our recent reports on new development and factors behind the market, one of our clients suggested graphing out the quantity of new housing built in the city over time. Based on census figures, the resulting (very approximate) chart illustrates the decline in new-home construction in the 1980’s and 1990’s, which helped exacerbate our current housing crunch.

Another note: the housing “units” built in 1940-1950 were not only much more numerous, but were typically 2-3 bedroom houses, while since 1980, the units built have generally been 1-2 bedroom condos and apartments (which makes sense with our changing demographics – more singles and couples, fewer families – but obviously hold fewer people per unit). And now a big topic in development is building urban “micro-units” of 250 to 350 square feet.

Our chart on SF population growth follows as a counterpoint.

New-Home-Construction_SF_by-Decade

Population-Growth_SF

Condo Values & Sizes by Era of Construction

A previous condo construction boom ran from the end of the 1990’s until 2008, when it crashed for 4 years – and now we’re in the midst of a new boom.Condos built in the last 15 years are selling at higher dollar per square foot values, but average unit sizes have also been getting smaller – and all things being equal (they rarely are), the smaller the unit the higher the per square foot value. Of course, there are other considerations besides size that affect value: quality and graciousness of construction (i.e. Marina-style and Edwardian flats), views (most likely in high-rises), amenities (security, gyms, outdoor space, etc.) and neighborhood ambiance (Russian Hill vs. Noe Valley vs. SoMa). The average $/sq.ft. for new condos now exceeds $1000 in the city, and, according to estimates, at the new, luxury, South Beach development, Lumina, it is now running $1400 to $1500/sq.ft. on units going into contract.

As increasing quantities of “luxury” condos come on market in coming years, it will be interesting to see how the market reacts and absorbs the new inventory.

AvgDolSqFt_Condo-by-Era-V2

Home Appreciation vs. Inflation

Since 1988, home price appreciation has hugely outpaced CPI inflation, though as seen below, the difference can swing dramatically depending on the exact point within a financial cycle.On a cash investment basis, if you had put $100,000 down on a $500,000 home purchase with a 30-year loan in 1988, by the end of 2014, per the Case-Shiller Index, your home would be worth approximately $1,900,000. After deducting 7% closing costs and paying off the remaining loan balance, your $100,000 down-payment turned into approximately $1.65 million in proceeds (if you didn’t continually refinance out your growing equity to buy new toys).

This is a very simplified calculation of a complex financial scenario that includes leverage, financing terms and interest rates, inflation, appreciation, multiple tax benefits and housing costs – you should talk to your accountant – but it still illustrates why a recent New York Times op-ed piece (11/30/14, “Homeownership & Wealth Creation”) said, “Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.”

Home-Prices_vs_Inflation

San Francisco Neighborhood Values

We just updated our semi-annual breakdown of SF home values by property type, bedroom count and neighborhood. Below are the tables for 3-bedroom houses and 2-bedroom condos while the full report can be found here. If you want data on a neighborhood not included, please call or email.

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Seasonality & Demand

This graph from our updated report on market seasonality measures the ebb and flow of buyer demand as compared to the supply of homes available to purchase. For the last 3 years, spring has been the highest demand season of the market, leading to significant home price appreciation.

Seasonality_Percentage-Under-Contract

Bay Area Rent Appreciation

This chart is from our January Commercial Brokerage report on Bay Area investment real estate. The full report has further detail on average rent rates and trends, and other apartment building financials.

Invest_YOY_Rent-Appreciation_by_County

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 how they apply to any specific property is unknown without a tailored comparative market analysis. All numbers should be considered approximate. Please contact us with any questions or concerns.

© 2015 Paragon Real Estate Group

From our NorCal network : The Artisan Group

3313549

2460 Painted River Trail
Reno, NV 89523
Offered at $1,450,000

For more information about this property or a referral to other areas of Northern California, please contact me.