New Case-Shiller shows another jump in Bay Area home prices

The new Case-Shiller Index report for the 5-county San Francisco metro area , for March, is showing the same acceleration in home prices that buyers and sellers are experiencing in the market. The 2.4% increase from February to March 2014 is the largest since spring 2013, and further significant increases are expected in the Index reports for April and May when they come out in the next two months. Nationally, home prices saw only a .17% increase month over month, and Case-Shiller’s 20-City Index showed a .87% increase, so San Francisco and the Bay Area is strongly outperforming the rest of the country in home price appreciation.

Since the market recovery began in earnest in early 2012, northern Bay Area home prices have appreciated approximately 37.5% through March, according to Case-Shiller.

Case-Shiller_High-Tier_2011

Case-Shiller_from_1990

Bay Area Home Purchase vs. S&P 500

Return on Investment: 1994 – 2014

May 2014 Report

We recently put together an analysis comparing the comparative investment returns of buying a San Francisco Bay Area house, gold, Apple stock, an S&P 500 Index fund or putting money into a bank CD in January 2012 (Of Real Estate, Gold & Apple Stock). Not unreasonably, the issue arose regarding returns over a longer term. Now, whatever time period is used will always be fundamentally arbitrary, and different periods will often generate dramatically different results. Twenty years is a round number, which allows a nice mix of recessions, bubbles, crashes and recoveries to be encompassed within our inquiry.

Stock and home purchases cannot really be compared apples to apples: This is a simplified, good faith illustration pertaining to the investment of $100,000 in January 1994. February 2014 was chosen as the home sale date because that is the last published Case-Shiller Index (as of 5/20/14). Home prices in San Francisco have actually surged yet again in the past few months, but this is not reflected below. April 2014 was chosen for the stock sale date because that was last published update for the DQYDJ S&P 500 calculator.

S&P 500 Index Investment, 1994 – 2014

In hindsight, 1994 was an excellent time to put money into the stock market.
If hindsight investing was viable, we would all be rich as Russian oligarchs.

Invest-ROI_S&P-500_20years

Bay Area Home Purchase, Buy in 1994, Sell in 2014

1994 was an even better time to purchase a San Francisco Bay Area home.

Invest-ROI_Home_20years

Return on Cash Investment: S&P 500 vs. Bay Area Home

Certain benefits to U.S. homeownership boost return on investment over stock market.

Invest-ROI_S&P-vs-Home_20years

Including dividend reinvestment, the S&P 500 appreciated approximately 9% per year for a total of 473% over the 20 year period. (If account and transaction fees were deducted, the return would be somewhat reduced.)

Bay Area home prices appreciated much less than the S&P 500 during this period, approximately 5.5% per year for a total of 189%, but the return on cash down-payment investment would be approximately 733%, significantly out-performing stocks. This difference increases when taxes on gain are included in the equation.

Note: Adjusting for inflation, investment returns would be about 2.5% lower per year (the approximate, average inflation rate over the past 20 years). Both stocks and home investments significantly outpaced inflation.

Financial Advantages Peculiar to American Homeownership

1) Leverage: 189% appreciation of a $500,000 home = over 900% appreciation, before closing costs, of the $100,000 down-payment. If one pays all cash this advantage disappears, but one’s monthly cost of housing plunges (though probably not close to making up for losing the supercharging that leverage adds to investing).

2) Long-term, fixed-rate home loans: Which substantially lock in monthly housing costs (while other costs, such as rents, continue to increase) and can be refinanced at opportune times. When one can get a 30-year mortgage at what is, historically speaking, an extremely low interest rate, it makes an enormous difference in total interest expense and monthly housing costs. As an example, in 1994, the average 30-year rate was 8.4%; now, in mid-May 2014, it’s 4.2%, (in 2013, it dipped to below 3.5%) i.e. today’s million dollar loan charges the same interest as 1994′s $500,000 loan.

3) Multiple homeownership tax deductions: Such as the mortgage interest deduction, which effectively subsidize monthly housing costs. (Consult with a qualified accountant regarding your own tax situation.) These deductions, along with low interest rates and ongoing principal repayment of the loan, generally make net monthly homeownership costs comparable to and often less than the cost of renting the same home. (Rent vs. Buy Calculator)

4) The huge, capital-gains exclusion on the sale of a primary residence: $250,000 for singles/ $500,000 for couples. It’s a rare investment that allows you to walk away with large, untaxed profits. For a couple selling their home in the above investment scenario, it means an extra $75,000.

It’s worth noting that advantages 2, 3 & 4 above are not found in most other countries, and indeed some of them remain issues of political contention in our country as well.

Homeownership as Investment & Homeownership as Housing

In this analysis, home-ownership is divided into two distinct financial spheres: 1) the investment return on the $100,000 down payment: you put in $100k cash and upon sale, you receive a certain amount of cash proceeds back. And 2) the cost of living in the home you purchase, i.e. the monthly net homeownership cost (principal, interest, taxes, insurance and maintenance, after tax deductions and principal pay-down), which is minimally assumed to be, over the course of time, comparable to the cost of renting.

Upon purchase in 1994, with interest rates at over 8%, the net homeownership cost probably exceeded the cost of renting by a good margin. But interest rates then started to decline: to under 6%; then under 5%; and in 2013, to under 3.5%. As of mid-May 2014, it is 4.2%. Refinancing at selected times over the 20 year period would have dropped net monthly homeownership costs substantially, while San Francisco rents over the same period have soared to historic highs. Ultimately, the monthly cost of owning would be far below – probably more than 50% below – the market rental rate for the same home.

The cost of housing issue is not figured into the return on investment scenario, because the equation simply gets too complicated. This is one of the ways in which comparing homes to stocks is not an apples to apples comparison.

Asset Building One Loan Payment at a Time

This analysis does not adjust proceeds of home sale for the reduction of outstanding loan balance over the 20 years, i.e. of the original $400,000 loan, only $153,000 remains due and payable upon sale. If this was done, then cash after-tax proceeds of sale would be almost $250,000 higher.

Homeownership over time — especially longer periods of time — not only typically delivers a good return on investment, but as long as one doesn’t refinance out increasing home equity to buy yachts or finance a child going to college, it acts as a lay-away savings account that grows each month as your loan payment reduces the principal loan amount due. In earlier generations, this was a classic strategy: buy a home, live in it for 30 years, retire, and then either live in it at a very low cost, since there is no longer a mortgage payment, or sell it and recoup not only appreciation but the initial purchase loan amount which has turned into home equity. Many of us are not that good at saving: Mortgage repayment can act as a “forced” savings account to be tapped far in the future, such as upon retirement.

If you want to read even more analysis regarding leverage, inflation and home equity, please see our October 2013 article: Home-Buying as Investment

Real estate markets, like other financial markets, typically move in cycles:
Where you buy and sell within these cycles can dramatically affect the outcome.
 

Inner Mission Real Estate

innermission2

For a district that covers so much ground, the Inner Mission has a dearth of available for-sale real estate. While it’s true that this may in part be due to a region-wide housing inventory shortage, this neighborhood’s situation is nothing new. The situation in the Inner Mission is this: it’s a long-time neighborhood of renters, full of multi-unit housing. The Inner Mission has within its borders a smattering of single-family homes, but it’s not unusual to find only one or two for sale at any time.

Why are there so many hot restaurants and bars in the Inner Mission? Because it’s very popular with young San Franciscans; why is it so popular with young San Franciscans? Because there is so much happening in the Inner Mission! It’s a “chicken vs. egg” situation; one hand feeds the other.

This is not to say that there are zero options for homebuyers in the Inner Mission. Besides the odd single-family home, interested parties will find a handful of Tenants-in-Common units, condominiums and lofts for sale there, a combination of rehabbed and non-rehabbed vintage properties (many dating back to the 19th-century) and recently built condos generally ranging in size from studio to three bedrooms. What’s missing of late are the bargains that drew pioneering buyers to the Mission in the past.

A recent check of the Multiple Listing Service (MLS) revealed this: the least expensive for-sale property in the Inner Mission is a one-bedroom unit at VIDA, a new condo building at 2558 Mission, next to the old Mission Theater. It lists for $579,000, well below the neighborhood condominium median of $749,000. The same MLS perusal shows four condo and TIC units listed for more than $1 million, along with three more at $995,000 and above. This is what happens when a neighborhood becomes popular.

And popular the Inner Mission is, because of its vibrant nightlife and its central location, three BART stops from the Financial District, close to SOMA and a short drive from the nearest Highway 101 on-ramp. As a result, a district once known for real estate in a state of disrepair is now white hot among ambitious, would-be rehabbers, restoring properties either for themselves or for their would-be tenants.

Along with the Western Addition, the Inner Mission boasts San Francisco’s largest concentration of Victorian and Edwardian buildings. Until recently, these beautifully -detailed, spacious living spaces lived lives of slow decline and deferred maintenance, housing longtime owners or generations of short-term renters. With the district’s gain in popularity, buyers are targeting the Inner Mission’s aged housing inventory, snapping up condos, TICs, multi-unit buildings and single-family homes on Bartlett, Capp, Shotwell, Treat and other Mission streets.

Developers found the Inner Mission during the first dot-com explosion, adding low- and mid-rise condominium and apartment complexes to the neighborhood. Expansion continues with recent construction at 1501 15th (known as Fifteen Fifteen, for-sale condominiums under construction), 2258 Mission (known as VIDA, for-sale condominiums under construction), 1600 15th (known as Vara, apartments for rent), 3500 19th Street (new condominiums, sold out) and 299 Valencia (new condominiums, sold out) finding buyers and renters almost immediately.

As for those rental properties, a recent study by Trulia.com named San Francisco the fourth-most expensive city for rentals. A two-bedroom apartment in the city requires 51 percent of the average local wage, a figure trailing only Miami, New York and Los Angeles. As of this writing, two-bedroom apartments and houses in the Inner Mission fetch between $3,500 and $5,000, one-bedroom units between $2,000 and $3,000.

The Inner Mission has taken its place among San Francisco’s most popular neighborhoods, especially with young professionals. Its home prices reflect this, but that doesn’t mean it’s become completely devoid of bargains. Those with the time and resources can still find gems hidden both in its quiet side streets and its bustling main thoroughfares. Either way, those who choose to live in the Inner Mission find no shortage of vibrancy, architectural diversity and local color.

New Housing Construction Report

San Francisco New-Housing Construction Trends
Within its 47 square mile envelope, San Francisco is already the 2nd most densely populated 
city in the United States, and it’s growing denser, more affluent and more expensive.
May 2014 Report with 13 Custom Charts

The charts included are mostly based on the San Francisco Planning Department’s excellent Housing Inventory and Pipeline reports, which can be accessed using the links at the bottom of this article. Quotes below are excerpted from these reports.

Packed with information, the data in one report section will not always agree perfectly with that in another – due to the multiple sources of data used by the Planning Department – and this is reflected in our charts as well. In the complex, lengthy process of new-housing application and review, public hearings (and, lately, ballot proposals), revisions, entitlement, permitting, construction and completion, how and when a project is counted may vary. Housing units are being built and being removed, and there are so many types: rental or sale, market rate or affordable, social-project housing or luxury condominiums.

Last but not least, this landscape is in constant flux – new projects, plan changes, and shifts in economic and political realities. Everything below is simply a good faith estimate. The basic reality is that San Francisco, after its recent 2008-2012 new-construction slump, is now experiencing a building boom. So far, however, it has not been able to keep up with population growth and rising buyer/renter demand.

Adjusting your screenview to zoom 150% will make the charts that much easier to read.

New-Construction_Authorized-Completed

New construction authorized typically will not show up as housing units completed until later years. And, of course, a developer can decide not to build after authorization if market circumstances change. The post-2008 drop in authorizations is clearly illustrated here.

“Some of the larger projects completed in 2013 include: 1190 Mission Street (355 market-rate units and 63 affordable units), Rincon Green (277 market rate units and 49 affordable units), Nema (279 market rate units and 38 afford­able units).”

“Very large projects (200 units or more) filed in 2013 and are under Planning Department review include: Mission Rock (1,500 units); 150 Van Ness Avenue (429 units); 41 Tehama Street (398 units); 1066 Market (330 units); 950 Market Street (316 units); and 1301 16th Street (276 units).”

Besides the above projects, rarely a week goes by in which new commercial property sales aren’t being announced – such as the Honda dealership lot and the KRON Building, both on Van Ness – with plans for large-scale residential development projects.

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New-Homes-Pipeline

A glance at the recent past, the present and the possible future of new housing construction in the city. New projects are continually entering and moving through the pipeline, and existing plans may be changed or even abandoned.

“There are currently 857 projects in the pipeline. Of these, 74 percent are exclusively residential and 17 percent are mixed-use projects with both residential and commercial components. Only 8 percent of projects are non-residential developments. A net total of 50,400 new housing units would be added to the city’s housing stock according to current data. Around 18 percent of all projects, representing 6,000 net added housing units and 2,750,000 sq. ft. of commercial space, are under construction. Around 20 percent of projects (with another 4,200 net units and 3,8 million sq. ft. of commercial space) have received building permit approvals. As of the time of writing, some may have moved to the construction phase.”

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New-Construction_by-Bedrooms

We haven’t found an easy place for construction data by unit size, so this chart is extrapolated from the last 7 years of SF MLS sales of condos built 2001 -2014. 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. Of course, many singles and couples like to have a guest bedroom or home office.

However, in 2012, the city agreed to allow the construction of 375 “micro-units,” apartments of 220 to 300 square feet, including kitchen and bath. A few dozen have been built – one article mentioned a rental rate of $1850/month – and another 160 are under construction in the mid-Market area. It will be interesting to see how this trend develops (or doesn’t) in both the rental and for-sale markets. It might be a good match for the relatively young (but well paid), non-driving, high-tech workers pouring into the city.

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New-Construction_by-SF-District

New construction has been concentrated in a few specific districts of the city, mostly where higher density housing projects are most viable. “The ‘hot spot’ for much of this development is Market Street at various sections of it.”

The ability to take under-utilized commercial property sites and turn them into multi-unit or even high-rise residential projects is particularly prized: “There are 50 projects in the current pipeline data­base proposing demolition or conversion of existing [commercial] build­ings to residential use.” “Nearly all units replacing office uses are in mid- to high-rise residential structures of 20 to 500 housing units in high density zoning districts. These projects are mostly concentrated in the eastern half of the city: Rincon Hill, East SoMa, Showplace Square & Potrero Hill, Transbay, Mission and Downtown.”

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New-Housing_Construction-Conversion

Three issues regarding new condo construction: the year in which a project is designated as “completed” in city reports can vary, depending on the department and the dating of events within the process (so this chart won’t perfectly tally with others). Secondly, some developers build and record the units as condos but then rent the units instead of selling them. Finally, new housing projects are now typically required to sell or rent about 15% of units under affordable-housing rules. All these factors affect how new condo construction impacts rental and sale markets.

“Single-family building construction made up a very small proportion of new con­struction in 2013 (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.

“Seventy-six percent of the condominium conver­sions in 2013 (279) were in buildings with two or three units.” The rules governing condo conversion in San Francisco are byzantine, politically-wrought and ever-changing, and the changes affect the ability to convert existing multi-unit properties and TICs into condominiums. Two-unit properties are much the easiest to convert into condos and accordingly enjoy a sale price premium.

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AvgDolSqFt_Condo-by-Era-Built

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.

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Affordable-Housing_Construction

New housing typically conjures images of new condo developments, but it’s more complicated. Within new market-rate condo and apartment projects – rental housing construction has also been jumping with the recent large spikes in rents – typically 15% of units are required to be affordable housing: 220 of these “on-site” units were built in 2013. Add in social-project housing of one kind or another, and 36% of all new units built in 2013 were affordable housing. These units are allocated, rented and sold under rules and formulas pertaining to social and economic circumstances and housing cost.

“About 93% of the new affordable units are rentals affordable to very-low and low-income households.”

“Major affordable housing projects completed in 2013 include: 25 Essex Street (120 units); 701 Golden Gate Avenue (100 units); 474 Natoma Street (60 units); 1075 Le Conte Avenue (73 units); 60 West Point Road (54 units); and 61 West Point Road (13 units).”

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Housing-Units_Lost

There are not only new housing units being built, there are existing housing units being removed from the city’s inventory of housing stock – demolished, merged (2 or more legal units into 1) and abated (illegal units): one less the other equals the net housing unit increase.

There is currently proposed legislation to encourage the legalization of illegal housing units in San Francisco, estimated to exist in the tens of thousands. This is problematical because the reason most of these units are illegal to begin with is that they don’t conform to housing codes – ceiling height, light and ventilation, and fire safety issues are most common – and cannot easily, without substantial expense, be altered to comply.

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New-Home_Construction

This is another approximate snapshot of how general economic conditions affect new housing construction. When the financial markets crashed in 2008, new construction went into a tailspin due to demand and financing issues. As the economy has recovered, it has sprung back to life – as is clear by all the cranes stalking the city’s lots. Like most financial markets, real estate development has economic cycles – cycles that often include dramatic booms and crashes. This is exacerbated by the length of time between a developer’s initial plan and land purchase, and the completion of the project, which often runs to years. It can be difficult enough to predict what market conditions will be next month, much less in two, three or more years.

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Housing-Inventory_by_Property-Type

We created this chart in 2013 with data compiled from a variety to sources we deem reliable. All the numbers should be considered very approximate – and they are constantly changing – but the chart is generally representative of the existing housing breakdown in San Francisco.

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New-Construction_by-County

New home construction in the Bay Area is currently concentrated in 3 of the 4 hottest rental and/or purchase markets in the country: the greater Silicon Valley area, San Francisco and the East Bay. Of course, much of this is directly related to surging high-tech employment and wealth.

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What ultimately underpins new housing construction is demand. Below are two 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 accelerate the construction of affordable housing units as well (a very big political issue right now).

From 2010 to 2013, the city added approximately 32,000 residents and increased the number of employed residents by roughly 56,000, many of them in new, well-paying high-tech jobs. In that same period, about 4,200 new housing units were added, not remotely adequate to meeting demand. And it is currently projected that the city’s population will continue to grow in coming years. When demand soars and supply is inadequate, prices and rents go up (in the city’s recent case, feverishly), and builders start building again as quickly as they can, hoping to catch the wave at exactly the right time.

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Below are image- links to the actual SF Planning Department Pipeline and Housing Inventory reports issued in February and April 2014, upon which many of the above charts were based. They contain huge amount of data, which we have attempted to represent accurately. As noted by their authors, who did an incredible job compiling the data, 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:

Inner Mission: More than a cool address

marketreport_innermission

For most of the past 20 years, the Inner Mission has been a flashpoint. Since the first early 1990s dot-com start-up set up shop in the neighborhood, the debate has raged over who “owns” the large swath of central-eastern San Francisco bounded by Market Street (north), Cesar Chavez Street (south), Potrero Avenue (east) and Valencia Street (west). Today, skyrocketing real estate prices and high-visibility corporate shuttle buses have emotions running higher than ever, with local activists calling for a “return” to the Inner Mission of the past.

Anyone familiar with this vibrant district’s history, however, might want to ask the latest round of protesters this: to which “past” are you referring? The Mission of 2014 resembles the Mission of 1994 no more than the Mission of 1994 resembles the Mission of 1974 or 1954 and so on. This is a place defined by change.

Because it looms so large in the imaginations of San Franciscans (and those beyond), the Inner Mission is too often characterized by brief glances, which is unfortunate. There is far more to this physically large district than cool restaurants, hip bars and bearded young tech workers. They’re there, of course, and they earn the Inner Mission, especially along Valencia Street and to a lesser but growing degree, Mission Street, its cache as San Francisco’s most exciting nightlife district. Some of the city’s most notable restaurants – like Flour + Water, one of Travel & Leisure’s “Best Restaurants in the U.S.” – are in the Inner Mission, as are a number of creatively dynamic theaters and art galleries and, of course, an abundance of cutting-edge startup businesses.

But this place is more than a cool address. Away from the hubbub of Mission and Valencia there are tree-shaded streets, remnants of a time when the Inner Mission was a desirable address for San Francisco’s upper class. Drawn by its sunny weather than recent streetcar proximity to downtown, they built ornate Victorians on the narrow streets between Mission and South Van Ness, Folsom and Harrison. Many of them still stand; few have been restored to their former glory.

Today they are homes to a working-class population that has been in the neighborhood for close to a century. Though it’s a place of constant change, the Inner Mission has always made room for long-time residents and families, the sort of locals that become the fabric of any vital neighborhood.

The Inner Mission has a long history of diversity, stretching back to its days as a neighborhood of Irish, Polish and German immigrants and into the post-World War II emigration of Central and South Americans that gave the district its present-day Latino flavor. Anyone looking for evidence of the Inner Mission’s constant change need only to stroll down Mission Street, where in some spots Spanish is spoken exclusively, then note, only a few blocks away, the Polish Club of San Francisco, at its present 22nd Street location since 1926, or stop at any of the neighborhood’s many Irish bars, in place for decades.

Or they can explore the Inner Mission’s northeastern quadrant, where they’ll find warehouses and small factories, commercial buildings that have served a myriad of purposes during their long histories. On Alabama and Florida Streets, furniture refinishing shops abut galleries, body shops call vegan cafes “neighbor.” Landmark buildings like the San Francisco Armory recall colorful histories that include serving as the city’s primary sports arena (it hosted, among other things, several heavyweight bouts during the 1920s, 30s and 40s), a soundstage for the original Star Wars, and, most recently, an internet concern that makes adult films.

The Inner Mission was once where professional baseball happened in San Francisco. No fewer than three ballparks called the district home, including, famously, Seals Stadium on 16th Street. The longtime home of the Pacific Coast League San Francisco Seals (at one time one of two Mission-based PCL teams, the other being the Mission Reds) was also where the newly-relocated Giants played their first few seasons in San Francisco, beginning in 1957.

Factories, ballparks, amusement parks (Woodward Gardens, 1866-1891), mansions and even a native accent – people speaking the “Mission dialect” were said to “talk like Brooklynites – adds up to an unavoidable fact: that there is far more to San Francisco’s Inner Mission than restaurants, bars and hipsters.

Source : Parascopesf.com

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10 Cragmont Avenue

Seller Represented
Read more

Of San Francisco Real Estate Gold & Apple Stock

May 2014 Report

On January 1, 2012, you woke up to find $200,000 on your bedside table, which you decided to invest. Then, on May 2, 2014, you sold your investment. Below are approximate returns depending on where you placed your cash.

Investment-Return_RE-vs-Stock

Assumptions:

Gold: you bought at $1566 per ounce and sold at $1300 per ounce: Bad timing.

Certificate of Deposit: 1% annual interest rate; interest taxed as ordinary income: It seemed like the safe thing to do in an uncertain world.

Stock purchases: Apple stock jumped 46% and the S&P 500 50%; plus an estimated dividend yield of 5%; profit taxed as long-term capital gains. (No transaction costs included in calculation.)

Home purchase: $200,000 down-payment on $1 million home; 35% home-price appreciation per Case-Shiller; 2% closing costs on purchase and 7% on sale deducted from gain. No capital gains tax due to the $250,000/$500,000 exclusion for sale of primary residence. The estimated $28,000 reduction in loan principal was not included in gain, as it pertains to monthly home payments made after initial investment.

It is assumed that the net monthly home cost – principal, interest, property taxes and insurance, after tax deductions and reduction in loan principal – at an estimated $3250/month, was comparable to cost of renting. This has generally been true in San Francisco due to high rents and low interest rates.

There are 3 big reasons why real estate dramatically outperformed the stock market, though both markets boomed: 1) leverage – 35% home-price appreciation equals 175% appreciation of your 20% cash down-payment (before closing costs); 2) big tax deductions subsidize home ownership costs, and 3) the capital gains exclusion on the sale of a primary residence.

Important: Timing is everything in investing. In this analysis, the chosen buy date was January 2, 2012 when the financial and housing markets were poised for big rebounds. Picking a different purchase date, such as January 2, 2008, would completely alter the results. *

 

SP-OP_DOM_by-MonthWhite Hot Spring Market
The hotter the competition between buyers, the higher home prices are bid up. The great majority of SF home listings are selling quickly and for over – sometimes far over – asking price.

This link charts the trend over the past 2+ years.
Sales Price over List Price Trend

 

 

Paragon-Survey_Home-BuyersCurrent Buyer & Seller Dynamics
Since Paragon does so much business in San Francisco – our Van Ness branch represents more successful SF home-buyers than any other office – we surveyed our agents on what they were seeing in the market. This chart looks at buyers, and this link goes to our full survey report:
Paragon Agent Survey

 

 

New-Home_ConstructionNew Housing Construction
A look at the ebb and flow of new housing development in the city – which is generally very inadequate to growing demand.

And this link looks at the “pipeline” of projects under construction or planned for future years:
New Homes Pipeline

 

 

Ranking_San-Francisco_4-14Ranking San Francisco
On a lighter note, we recently collected rankings by dozens of “authorities” – some more reliable than others – regarding San Francisco. This link goes to the full list:
The Full Ranking Report

 

 

 

Invest_SF-Rents_by-NeighborhoodApartment Building Market Report
We just issued our quarterly update on Bay Area residential investment real estate. This chart looks at current asking rents by neighborhood, and this link goes to the full report:
Paragon Apartment Update

 

 

Since opening our doors in 2004, the Paragon Community Fund has donated over $500,000 to local charities and social services. The San Francisco Bay Area isn’t just where we do business; it’s our home and our community.

* The investment analysis above is simply one scenario based on specific circumstances. It was performed in good faith, but may contain errors or assumptions you may disagree with, or may not apply to your specific tax situation. Investment and tax issues should be investigated with a qualified accountant or financial planner.

South Beach: Part 2

southbeach2aSouth Beach is a district with many distinct personalities — ranging from its Financial District-adjacent hyper-urban vertical self to the quiet dignity of South Park and the shiny waterfront surrounding AT & T Park. It makes perfect sense that a neighborhood of such dimension would have an equally broad housing market, and South Beach does. While it lacks a single-family home option (common for a downtown neighborhood), South Beach checks almost every other housing box.

Are you just out of college, newly well-employed, looking for a studio or one-bedroom apartment in a buzz-worthy location? South Beach has you covered with large complexes like the South Beach Marina and, scattered throughout the district’s southern quadrant, a smattering of small, SoMa-like Edwardian buildings. Are you a wealthy empty-nester or international “citizen of the world” who desires a super-urban pied-à-terre perfectly situated to take advantage of one of the world’s most desirable cities? How about a sleek upper floor unit at a full-service luxury high-rise like the Infinity, the Metropolitan, the Watermark or One Rincon Hill?

Or maybe you’re a successful technology entrepreneur whose dream is a huge, cutting-edge living space showcasing modern design and views of leafy South Park; South Beach has those too, along with lofts in new and refurbished historic buildings, boutique condo buildings and sprawling, early-generation complexes like The Beacon and The Brannan, offering proximity to the waterfront, the ballpark and the growing King Street shopping and dining corridor. South Beach doesn’t have everything, but it does have something for almost everyone.

If that weren’t enough, South Beach is also growing faster than any San Francisco neighborhood outside of Mission Bay. Pause for a moment at the corner of Beale and Folsom Streets, in South Beach’s Rincon Hill section; to say that there is construction happening on all four corners is only a slight exaggeration. It’s happening on three, all in the shadow of South Beach’s landmark residential tower, One Rincon Hill. 50-story One Rincon stood alone, towering above warehouses and low-lying commercial buildings, for several years. Soon it will have neighbors of similar scale to its own.

However many new towers come to South Beach, don’t expect the neighborhood to ever become a “concrete canyon.” In 2005, the City of San Francisco updated its plan for Rincon Hill, calling for a series of towers, yes, but also for interspersed mid- and low-rise construction, creating enough space between high-rises to foster livability and to preserve natural views. The strategy, known as “Vancouverism,” after the well-planned Canadian city, was a response to earlier downtown San Francisco development, which more closely followed the Manhattan model. To put it in urban planning shorthand: “Vancouverism” triumphed over “Manhattanism.”

“Vancouverism” creates room for boutique condo buildings like newly-completed 14-unit 750 2nd Street, for smaller-scale, pedestrian-friendly commercial strips (the 2005 plan designates Folsom Street as one of these) and for existing warehouse buildings like the South End Historic District, in entirety, to co-exist with massive towers like One Rincon Hill. South Beach, already unique because of the housing diversity within its borders, is designed to stay that way.

Like neighboring Yerba Buena, South Beach tilts toward the high end of the real estate market. A recent check of the Multiple Listing Service revealed 32 active South Beach listings. Of those, 18 were priced above $1 million, with a third asking north of $2 million and a median asking price of $1.2 million. Four were lofts, priced in a range of $749,000 to $1.375 million. The rest were condominiums.

For those looking to rent in South Beach, be aware that neighborhood rents run between $500 and $1,000 higher than those in the rest of San Francisco. Expect to pay upwards of $3,000 per month for a one-bedroom unit in South Beach.

It’s not cheap but it is exciting, convenient and chic. 20 years ago, modern South Beach didn’t exist. Today it’s one of San Francisco’s most popular downtown neighborhoods.

Source : Parascopesf.com

New Case Shiller Index

The new February S&P Case-Shiller Index for high-price-tier homes in the 5-county San Francisco Metro Area increased almost 1% from the January reading. This puts the Index up about 20% over the past 12 months, and up about 34% since the recovery began in earnest in early 2012. Based upon what we are seeing in the market, I expect another increase in the March Index. (The Case-Shiller Index is published 2 months after the month specified.)

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Buyer-Seller Dynamics in San Francisco

This April 2014 analysis was based upon a survey of Paragon Real Estate Group agents regarding their past 12 months of activity: Paragon agents close over 1000 San Francisco home transactions per year; Paragon’s Van Ness office represents more buyers in successful city home purchases than any other brokerage office.

All percentages are approximate: This was not a rigorously controlled survey and analysis, but more an informal poll; still we believe the data below does generally reflect market dynamics in San Francisco.

San Francisco Home Sellers 

60% are selling to relocate outside of San Francisco: The main reasons, in order of prevalence, are schools (and other family-raising reasons) — which ties in with the fact that SF has the lowest percentage of children of any major city in the country — affordability (the ability to buy more home for the money elsewhere), job-related reasons (relocation, commute) and retirement.

15% involve trust, probate or investor sales, or people moving into rentals or retirement homes, and no new home purchase is involved.

25% are selling in order to buy another property within the city, typically either upgrading to a more expensive home or downsizing to a smaller home, or a divorce is involved.

San Francisco Home Buyers 

50% are first-time buyers. This is a very high percentage: In the U.S. the percentage is about 30% (and, of course, the U.S. median price is under $200k, while the SF median is over $950,000).

Average age of SF home buyers is generally getting younger and is currently in the mid-thirties.

47% of SF home buyers are employed in high tech. This is a distinctly San Francisco phenomenon related to the first 2 points above: An influx of relatively young, often newly affluent, high-tech employed, often first-time buyers – who can afford SF home prices – is playing a decisive role in the market.

20% of prospective SF home buyers have become discouraged and given up on buying in the city, due to the competitive environment and rapidly appreciating prices. They’ve either given up for the time being or shifted their home searches elsewhere.

Less than 3% of SF home buyers are foreign – exposes the myth of foreign money playing a significant role in the SF market. What purchases/investments they are making seem to be mostly in new or newer, high-rise condo developments. (There are cities in the U.S. in which large numbers of foreign buyers are having a significant impact on the market – Miami may be the most dramatic example – but SF is not one of them at this time.)

26% of homes are being purchased via “all cash” offers, though many of these offers are structured this way solely for strategic reasons to get their offers accepted in an exceedingly competitive environment. That is, many of these buyers end up getting loans either before or immediately after close of escrow. (This is a different phenomenon than investors paying all cash for distressed homes in other parts of the country – San Francisco has had very few of these sales in the past 2 years.)

Approximately 10% of home sales occur outside of the multiple listing service, i.e. as so-called off-market/ off-MLS/ pocket listings. This agrees with other analyses Paragon and others have performed.

Conclusions: To a greater extent than is probably normal, there is an exchange process occurring in San Francisco, with existing residents moving out and new residents moving in. One of the biggest reasons for selling is to relocate for better public schools outside SF or to save money by enrolling children in suburban public instead of city private schools; high prices are motivating some city homeowners to cash out to buy bigger/better homes elsewhere; frenzied market conditions are discouraging homeowners who might otherwise sell to buy other (larger, better) homes within the city – many of these homeowners are staying put out of trepidation. This last situation is affecting/lowering the supply of homes for sale.

Population/ Employment Growth and Housing

According to the latest U.S. census data, the estimated increase in the city’s population since 2010 is 32,000; over the same period, the number of employed residents has jumped by over 55,000. Per the Planning Department, the approximate number of new housing units added since 2010 is 4200. With 38% of SF’s households consisting of 1 person, and an average household size of 2.3 persons, we’re looking at over 22,000 new residents who have been looking for homes that don’t exist. This is one of the biggest factors behind the huge upward pressure on rents and home prices.

With the market recovery that began in 2012, another 6000 housing units are currently under construction and most should be ready sometime in the next 2 years. Housing units include condos (sales), apartments (rentals), houses (a very few) and community housing projects.