Below is a look at the past 30+ years of San Francisco Bay Area real estate boom and bust cycles. Financial-market cycles have been around for hundreds of years, all the way back to the Dutch tulip mania of the 1600’s. While future cycles will vary in their details, the causes, effects and trend lines are often quite similar. Looking at cycles gives us more context to how the market works over time and where it may be going — much more than dwelling in the immediacy of the present with excitable pronouncements of “The market’s crashing and won’t recover in our lifetimes!” or “The market’s crazy hot and the only place it can go is up!”
Note: Most of these charts generally apply to higher-priced Bay Area housing markets, such as those found in much of San Francisco, Marin and San Mateo Counties. (Different market price segments had bubbles, crashes and recoveries of differing magnitudes in the last cycle.)
Up, Down, Flat, Up, Down, Flat…(Repeat)
The first chart below charts changes in dollar values, according to the Case-Shiller Index method (January 2000 = a home value of 100). The second chart graphs ups and downs by percentage changes at each turning point.
Smoothing out the bumps delivers the simplified overviews above for the past 30 years. Whatever the phase of the cycle, up or down, while it’s going on people think it will last forever: Every time the market crashes, the consensus becomes that real estate won’t recover for decades. But the economy mends, the population grows, people start families, inflation builds up over the years, and repressed demand of those who want to own their own homes builds up. In the early eighties, mid-nineties and in 2012, after about 4 years of a recessionary housing market, this repressed demand jumps back in (or “explodes” might be a good description) and prices start to rise again. It’s not unusual for a big surge in values to occur in the first couple of years after a recovery begins.
All bubbles are ultimately based on irrational and/or criminal behavior, whether exemplified by junk bonds, Savings & Loan frauds, dotcom stock hysteria, “Dow 30,000″ exuberance, “the end of the business cycle” nonsense, gorging on unsustainable debt, runaway greed (without any corresponding desire to produce anything of value) or dishonest financial engineering, but the most recent subprime-financing/ loan-fraud bubble was even more abnormal than usual, because it was fueled by large numbers of buyers purchasing homes that they clearly couldn’t afford (liar loans, deceptive teaser rates and the abysmal decline in underwriting standards) with no actual investment in the properties being bought (no down payment, 100%+ loans).
The light blue columns in the above chart graph the home-value appreciation that occurred in the first three years of each recovery – our latest rebound has been somewhat quicker than other recoveries, probably due to 1) the depth of the previous market decline, and 2) the huge, high-tech employment, population and wealth boom that has played out in San Francisco and nearby counties. (Not shown on chart: appreciation has continued in the first half of 2015, bringing total recovery appreciation since 2012 to approximately 57%.) The gray columns chart the appreciation of past recoveries from the beginning to peak value for each cycle, and the red bars delineate the percentage declines from those peaks, pursuant to the market adjustments that occurred. As always, note that market appreciation and depreciation rates can vary widely by county, community and neighborhood.
Surprisingly consistent: Over the past 30+ years, the period between a recovery beginning and a bubble popping has run 5 to 7 years. We are currently about 3.5 years into the current recovery, which started in early 2012. Periods of market recession/doldrums following the popping of a bubble have typically lasted about 4 years. (The 2001 dotcom bubble and 9-11 crisis drop being the exception.) Generally speaking, within about 2 years of a new recovery commencing, previous peak values (i.e. those at the height of the previous bubble) are re-attained — among other reasons, there is the recapture of inflation during the doldrums years. In this current recovery, those homes hit hardest by the subprime loan crisis — typically housing at the lowest end of the price scale in the less affluent neighborhoods, which experienced by far the biggest bubble and biggest crash — are taking longer to re-attain peak values. However, higher priced homes — which predominate in San Francisco, Marin and San Mateo Counties — have already surged past their previous peaks.
This does not mean that these recently recurring time periods necessarily reflect some natural law in housing market cycles, or that they can be relied upon to predict the future. Real estate markets can be affected by a bewildering number of economic, political and even natural-event factors that are exceedingly difficult to predict.
In the 2 charts below tracking the S&P Case-Shiller Home Price Index for the 5-County San Francisco Metro Area, the data points refer to home values as a percentage of those in January 2000. January 2000 equals 100 on the trend line: 66 means prices were 66% of those in January 2000; 175 signifies prices 75% higher.
(After Recession) Boom, Decline, Doldrums
In the above chart, the country is just coming out of the late seventies, early eighties recession – huge inflation, stagnant economy (“stagflation”) and incredibly high interest rates (hitting 18%). As the economy recovered, the housing market started to appreciate and this surge in values began to accelerate deeper into the decade. Over 6 years, the market appreciated about 100%. Finally, the eighties version of irrational exuberance — junk bonds, stock market swindles, the Savings & Loan implosion, as well as the late 1989 earthquake here in the Bay Area — ended the party.
Recession arrived, home prices sank, sales activity plunged and the market stayed basically flat for 4 to 5 years. Still, even after the decline, home values were 70% higher than when the boom began in 1984.
1996 to Present
(After Recession) Boom, Bubble, Crash, Doldrums, Recovery
This next cycle looks similar but elongated. In 1996, after years of recession, the market suddenly took off and continued to accelerate til 2001. The dotcom bubble pop and September 2001 attacks created a market hiccup, but then the subprime and refinance insanity, degraded loan underwriting standards, mortgage securitization, and claims that real estate never declines, super-charged a housing bubble. Overall, from 1996 to 2006/2008, the market went through an astounding period of appreciation. (Different areas hit peak values at times from 2006 to early 2008.) The air started to go out of some markets in 2007, and in September 2008 came the financial market crash.
Across the country, home values fell 15% to 60%, peak to bottom, depending on the area and how badly it was affected by foreclosures — most of San Francisco got off comparatively lightly with declines in the 15% to 25% range. The least affluent areas got hammered hardest by distressed sales and price declines; the most affluent were typically least affected. Then the market stayed flat for about 4 years, albeit with a few short-term fluctuations. Supply and demand dynamics began to change in mid-2011, leading to the market recovery of 2012.
The Recovery since 2012 (Case-Shiller)
This chart above looks specifically at home price appreciation since 2012 when the current market recovery began. Generally speaking, the spring selling seasons have seen the most dramatic surges in appreciation.
San Francisco Median Sales Price Appreciation
The charts below look at median sales price movements in San Francisco County itself over the shorter and longer terms. These do not correlate exactly with Case-Shiller – firstly because C-S tracks a “metro area” of 5 Bay Area counties, and secondly, because median sales prices are often affected by other factors besides changes in fair market value (such as significant changes in the distressed, luxury and new-construction market segments; in interest rates; seasonality; buyer profile; and so on).
The Current Recovery: 2012 – Present
In 2011, San Francisco began to show signs of perking up. An improving economy, soaring rents, low interest rates and growing buyer demand coupled with a low inventory of listings began to put upward pressure on prices. In 2012, as in 1996, the market abruptly grew frenzied with competitive bidding. The city’s affluent neighborhoods led the recovery, and those considered particularly desirable by newly wealthy, high-tech workers showed the largest gains. However, virtually the entire city soon followed to experience similar rapid price appreciation.
San Francisco median home sales prices increased dramatically in 2012, 2013, 2014, and then again in the first half of 2015. In the second half of 2014, after the spring frenzy had cooled off, home prices flattened out. We will see if that happens in the second half of 2015 as well.
Longer-Term: 1993 – Present
Comparing San Francisco, California & National Median Price Appreciation
San Francisco has been dramatically out-performing the overall state and national markets.
Mortgage Interest Rates since 1981
It’s much harder to decipher any cycles in 30-year mortgage rates, but rates remain astonishingly low by any historical measure, and this, of course, plays a huge role in the ongoing cost of homeownership and the real estate market.
More information regarding underlying demographic and economic conditions of the current real estate market can be found here: 10 Factors behind the SF Market
Housing affordability percentages typically and unsurprisingly run lower in affluent counties than in less expensive counties. In San Francisco, HAI is also affected by the very high percentage of residents living in rent-controlled housing, which disconnects, to a large degree, resident household income with market rate housing costs. Another issue in SF is that much of the market is being driven by new jobs and new wealth, which also skews the dynamic between existing household income and home prices.
Inflation & Interested Rate-Adjusted Housing Cost (since 1993)
The Home Cost Trends chart below reflects a very approximate calculation of monthly home payment costs (principal, interest, property tax and insurance) adjusted for inflation – i.e. in 1993 dollars – using annual median house sales prices, average annual 30-year interest rates, and assuming a 20% downpayment. The average annual compounding CPI inflation rate fluctuated, but averaged approximately 2.4% over the period, and average annual mortgage rates fluctuated from 8.4% to 3.7% (see mortgage interest rate charts earlier in this report), which, as mentioned before, had a huge impact on financing costs.
Adjusting for inflation and interest rate changes means that though the median sales price is now far above that of 2007, the monthly housing cost is still a little bit below then. This isn’t a perfect apples-to-apples comparison because it doesn’t take into account that the amount of the 20% downpayment increased significantly over the time period. Still, since ongoing cost is typically an important factor for homebuyers (at least those getting financing), this affords another angle on our market.
Different Bay Area Market Segments:
Different Bubbles, Crashes & Recoveries
2000 to 2014
The comparison composite chart above has not been updated since mid-2014, but it dramatically illustrates the radically different market movements of different Bay Area housing price segments since 2000. Farther below are updated individual price charts for each price segment.
Again, all numbers in the Case-Shiller chart relate to a January 2000 value of 100: A reading of 182 signifies a home value 82% above that of January 2000. These 3 charts illustrate how different market segments in the 5-county SF metro area had bubbles, crashes and now recoveries of enormously different magnitudes, mostly depending on the impact of subprime lending. The lower the price range, the bigger the bubble and crash. The upper third of sales by price range (far right chart) was affected least by the subprime fiasco and has now basically recovered peak values of 2006-2007. In the city itself, where many of our home sales would constitute an ultra-high price segment, if Case-Shiller broke it out, many of our neighborhoods have risen to new peak values. The lowest price segment (far left chart), more prevalent in other counties, may not recover peak values for years. If one disregarded the different bubbles and crashes, home price appreciation for all three segments since January 2000 is now (as of autumn 2014) almost exactly the same, in the range of 96 to 97%.
Low-Price Tier Homes: Under $561,000 as of 5/15
Huge subprime bubble (170% appreciation, 2000 – 2006) & huge crash
(60% decline, 2008 – 2011). Strong recovery but well below 2006-07 peak values.
Mid-Price Tier Homes: $561,000 to $925,000 as of 5/15
Smaller bubble (119% appreciation, 2000 – 2006) and crash (42% decline)
than low-price tier. Strong recovery has put it back very close to its 2006 peak.
84% appreciation, 2000 – 2007, and 25% decline, peak to bottom.
Now climbing well above previous 2007 peak values.
These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. All numbers are approximate and percentage changes will vary slightly depending on the exact begin and end dates used for recoveries, peak prices and bottom-of-market values.
The California Association of Realtors just released its Housing Affordability Index (HAI) for the 2nd quarter of 2015. All Bay Area counties saw declines in their affordability index reading – which measures the percentage of households that can afford to buy the median priced single family dwelling (house) – and San Francisco is now only 2 percentage points above its all-time low of 8%, last reached in Q3 2007.
In this analysis, affordability is affected by 3 major factors: median house price, mortgage interest rates and household income. (Housing Affordability Index Methodology).
Affordability Percentage by Bay Area County, Q2 2015
Minimum Qualifying Income to Buy Median Priced House
Assumes 20% downpayment and including principal, interest, property tax and insurance costs.
Bay Area Median House Prices, Q2 2015
Affordability Trends: San Francisco, San Mateo & Marin
These 3 counties illustrate the general ups and down in Bay Area housing affordability since 1991.
San Francisco County: Median Price vs. Affordability
Illustrating the surge in SF home prices and decline in affordability since the current market recovery began in 2012.
- By definition, half the homes sold in any given county were at prices below the median sales price, i.e. there were numerous homes that were more affordable than the median price, with lower associated housing costs and income requirements.
- The CAR Housing Affordability Index uses median house prices for its calculations. In all Bay Area counties, median condoprices run below and often far below median house prices, which also adds to overall affordability. In San Francisco itself, more than half of all home sales are condos, stock co-op apartments and Tenancy-in-Common units (TICs), and if units of less than 2-bedrooms are included, they are significantly less expensive than houses. (SF condos of 2-bedrooms or more actually come within 4% to 5% of overall median house prices.)
- Besides increases in employment and population, much of the demand for Bay Area housing is being driven by increases in household wealth, which is different from household income. Wealth includes gains from a surging stock market and such things as stock options and IPO proceeds at high-tech companies, which have generated huge amounts of new wealth over the past 3 years.
- Pertaining to San Francisco: Most of its households are made up of renters, most of whom are under rent control. Furthermore, a very large percentage – 39% – of SF households is made up of single persons. Both these issues skew the household income equation: According to census figures, SF has a lower median household income than Santa Clara, Marin, San Mateo and Contra Costa (but higher home prices).
Monthly Housing Costs: Purchase vs. Rental
Two issues to keep in mind when comparing monthly ownership costs with monthly rental costs, both of which are very high in the Bay Area: Firstly, the average house is much larger than the average apartment, so this is not an apples to apples comparison. Secondly, the housing costs for ownership should ideally be adjusted for loan principal repayment, which builds equity, as well as for the tax deductibility of mortgage interest and property tax payments (depending on one’s specific financial circumstances). Those are two reasons why buying often makes financial sense when compared to renting. Long-term home-price appreciation may be another.
San Francisco: Trends in Prices and Rents
The same economic and demographic forces have been putting pressure on both home prices and apartment rents.
SF Median Home Prices since 2012, by Quarter
SF Average Asking Rents since 1994, by Year
Mortgage Interest Rates since 1981
Interest rates play an enormous role in affordability, and it is certainly reasonable to be concerned that affordability percentages are now hitting such depths while interest rates are also close to historic lows. For example, in 2007, when affordability percentages hit previous low points, prevailing mortgage interest rates were approximately 50% higher than today’s. When interest rates start to rise – when and how much being the real questions – there will be potentially dramatic effects on affordability, which could presumably affect demand and prices.
Monthly Housing Cost Adjusted for Inflation and Interest Rates
This chart illustrates a very approximate calculation of monthly housing cost (principal, interest, property tax and insurance)adjusted for inflation – i.e. in constant 1993 dollars – over the past 22 years, using annual median house sales prices, average annual 30-year interest rates, and assuming a 20% downpayment. The compounding CPI-Urban inflation rate fluctuated over the period, but averaged about 2.4% annually. Average annual 30-year mortgage rates fluctuated from 8.4% to 3.7%, hitting a historic short-term low of 3.4% in 2013; it is currently running around 4%.
Adjusting for inflation and interest rate changes means that though the median sales price is now far above that of 2007, the monthly housing cost is still a little bit below then – which generally correlates with the HAI percentages. This isn’t a perfect apples-to-apples comparison because it doesn’t take into account that the amount of the 20% downpayment increased significantly over the time period.
Other reports you might find interesting:
The U.S. housing market may be finding more balance, according to a new report from realtor.com®. For the first three weeks in July, the median list price rose to $234,000 nationwide, up 7 percent year-over-year, while inventories of for-sale homes rose and the median days on the market increased to 69 days.
“This year we’re seeing inventory continue to grow in July, albeit at a slower pace than this spring,” says Jonathan Smoke, realtor.com®’s chief economist. “And while demand overall is strong, the trend in median days on market is suggesting that the market is finding more of a balance, which bodes well for more moderate price appreciation in the months ahead.”
However, some housing markets continue to see rapid growth. Realtor.com® found that 20 markets receive 1.5 to three times the number of views per listing compared with the rest of the nation. Inventory in those markets is moving 24 to 41 days quicker than the national average.
“These hottest markets are the best in the country from both a supply and demand perspective,” Smoke says. “Sellers are seeing listings move much more quickly than the rest of the country and at an accelerating pace from just last month. Meanwhile, these markets are clearly attractive to buyers as the listings in these markets are viewed as much as three times more often than the national average.”
Here is realtor.com®’s list for hottest housing markets in July:
San Francisco, Calif.
Santa Rosa, Calif.
San Jose, Calif.
San Diego, Calif.
Ann Arbor, Mich.
Santa Cruz, Calif.
Yuba City, Calif.
Los Angeles, Calif.
San Antonio, Texas
Fort Wayne, Ind.
Source: “The 20 Hottest Real Estate Markets in July 2015,” realtor.com® (Aug. 3, 2015)
The charts below are based upon 2015 YTD transactions reported to MLS by July 24, 2015 . We’ve generally broken out the neighborhoods with the most sales within given price points. To a large degree, if you’re buying a house in San Francisco, your price range effectively determines the possible neighborhoods to consider. That does not apply quite as much to condos and TICs: Generally speaking, in neighborhoods with high numbers of condo and TIC sales, there are buying options at a wide range of price points – though, unsurprisingly, the number of bedrooms increase as prices get higher.
Of course, era of construction, views, average size and many other features and amenities can vary widely between neighborhoods.
The overall median HOUSE price in the city in the 2nd quarter of 2015 was about $1,350,000, so the under million-dollar house is becoming much less common. The vast majority of house sales under $1,000,000 now occur in a large swath of neighborhoods running across the southern border of San Francisco: from Ingleside and Oceanview through Crocker Amazon, Excelsior, Portola and Visitacion Valley to Bayview. These southern border neighborhoods are by far the most affordable house markets in the city. (They don’t contain many condos at this point, though some big developments are planned.) Neighborhoods that not so long ago had numerous sales in this price range – such as Sunset, Parkside, Outer Richmond, Bernal Heights and Miraloma Park – have now generally appreciated over the last 3 years to the point where such sales are increasingly rare.
The horizontal columns reflect the number of sales under $1 million in 2015 YTD for each area, while the median sales prices noted are for all house sales during the period. Median price is that price at which half the sales occurred for more and half for less.
Where to Buy a CONDO, CO-OP OR TIC for Under $1 million in San Francisco
The overall SF median condo price in the 2nd quarter of 2015 was about $1,125,000. Sales under $1m still occur in almost every area of the city that features these property types, but a studio unit in Russian Hill may cost the same as a 2 bedroom unit in Downtown. Some areas with large volumes of sales, such as South Beach/South of Market or the greater Noe Valley district, offer units for sale at virtually every price point. In such districts, what will vary will be the prestige and amenities of the building, the size and graciousness of the unit, the floor the unit is located on, whether parking is included, and the existence of views and deeded outside space (decks, patios, or, less often, yards).
In the general category of condo, co-op and TIC sales in San Francisco, condos make up about 90% of sales, stock co-op apartments 1 to 2%, with TICs making up the balance. TICs typically sell at a significant discount (10% – 20%) to similar condos, but there are a number of factors that affect the exact price differential.
The horizontal columns reflect the number of sales under $1m in 2015 YTD broken down by sales of 1-bedroom units and sales of 2+ bedrooms.
Spending $1 Million to $1.5 Million
In this price point for houses, one starts moving into a different group of neighborhoods on the west side and in the central-south areas of the city. Within this collection of neighborhoods, one will typically get more house for one’s money in the Sunset, Parkside or Outer Richmond than in Miraloma Park, Bernal Heights or Potrero Hill. In the greater Noe, Eureka and Cole Valleys district, houses in this price range are now difficult to find.
In the charts below, the horizontal columns reflect the number of sales in each area, while the dollar amounts reflect average dollar per square foot values for the homes in this price range in the specified areas.
Condo, co-op and TIC sales in this price range are mostly concentrated in those areas where newer (and expensive) condo developments have come on market – and continue to arrive in increasing numbers – over the last 10 years, as well as, of course, in high-end neighborhoods such as Pacific Heights & Russian Hill, and Noe, Cole & Eureka Valleys.
Buying a HOUSE for $1.5 million to $2 million
Buying a LUXURY HOME in San Francisco
For the sake of this report, houses selling for $2 million and above, and condos, co-ops and TICs selling for $1.5 million and above are designated (somewhat arbitrarily) as luxury home sales. What you get in different neighborhoods for $2 million or $3 million or $5 million can vary widely.
The charts below are broken out by increasingly higher price segments within the overall “luxury” price range.
Luxury CONDO, CO-OP & TIC Sales
Luxury HOUSE Sales
San Francisco Neighborhood Map
For prevailing SF median house and condo prices, our interactive map of neighborhood values can be found here: SF Neighborhood Home-Price Map
SAN FRANCISCO REALTOR DISTRICTS
District 1 (Northwest): Sea Cliff, Lake Street, Richmond (Inner, Central, Outer), Jordan Park/Laurel Heights, Lone Mountain
District 2 (West): Sunset & Parkside (Inner, Central, Outer), Golden Gate Heights
District 3 (Southwest): Lake Shore, Lakeside, Merced Manor, Merced Heights, Ingleside, Ingleside Heights, Oceanview
District 4 (Central SW): St. Francis Wood, Forest Hill, West Portal, Forest Knolls, Diamond Heights, Midtown Terrace, Miraloma Park, Sunnyside, Balboa Terrace, Ingleside Terrace, Mt. Davidson Manor, Sherwood Forest, Monterey Heights, Westwood Highlands
District 5 (Central): Noe Valley, Eureka Valley/Dolores Heights (Castro, Liberty Hill), Cole Valley, Glen Park, Corona Heights, Clarendon Heights, Ashbury Heights, Buena Vista Park, Haight Ashbury, Duboce Triangle, Twin Peaks, Mission Dolores, Parnassus Heights
District 6 (Central North): Hayes Valley, North of Panhandle (NOPA), Alamo Square, Western Addition, Anza Vista, Lower Pacific Heights
District 7 (North): Pacific Heights, Presidio Heights, Cow Hollow, Marina
District 8 (Northeast): Russian Hill, Nob Hill, Telegraph Hill, North Beach, Financial District, North Waterfront, Downtown, Van Ness/ Civic Center, Tenderloin
District 9 (East): SoMa, South Beach, Mission Bay, Potrero Hill, Dogpatch (Central Waterfront), Bernal Heights, Inner Mission, Yerba Buena
District 10 (Southeast): Bayview, Bayview Heights, Excelsior, Portola, Visitacion Valley, Silver Terrace, Mission Terrace, Crocker Amazon, Outer Mission
Some Realtor districts contain neighborhoods that are relatively homogeneous in general home values, such as districts 5 and 7, and others contain neighborhoods of wildly different values, such as district 8 which, for example, includes both Russian Hill and the Tenderloin.
All data is from sources deemed reliable, but may contain errors and is subject to revision.
© 2015 Paragon Real Estate Group
Predictions for a strong El Nino effect may mean a heavy rain season in the Bay Area. Now’s the time to prepare!
147 Yerington Circle
Offered at $2,850,000
For more information about this property or a referral to other areas of Northern California, please contact me.
These charts show the breakdown of San Francisco home sales as reported to the city’s Multiple Listing Service, year to date 2015. We picked this period because, generally speaking prices appreciated again in late winter/ early spring 2015. 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.
These 2 charts below track San Francisco luxury home sales by price range and neighborhood. 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.
2-4 unit residential buildings contain about 80,000 or 21% of the housing units in San Francisco. This report will assess only such smaller apartment buildings that have not been converted to condos or exclusive-use TIC units: Condos and TICs are considered different property types than unconverted 2-4 unit buildings and are valued differently. The variety in units in these buildings is enormous and includes some of the most appealing and gracious apartments ever built.
In San Francisco, 2-4 unit buildings exist at the overlapping intersection of 2 different market segments: tenant-occupied, income property and owner-occupied,residential real estate. Values of such buildings are affected not only by the usual factors – location, condition, parking, views and so on – but also by issues such as income and expense, and rental upside potential; tenant profile, “protected” tenants and eviction history; vacant units, owner-occupancy suitability and the feasibility to convert to TICs and/or condos; and by the city’s ever-changing rent and eviction control regulations. With real estate, the devil is always in the details, and this property type in particular involves a lot of details to consider.
Sales by Era of Construction
San Francisco’s market for smaller apartment buildings is dominated by Victorian and Edwardian architecture, followed by the subsequent Spanish-Mediterranean/ Art Deco/ Marina Style era. The 3-flat Edwardian and the 2-flat Marina-Style buildings are classics of these periods. After WWII, builders generally shifted to single family home construction, and once condominiums started being built in the 1970’s, construction of multi-unit, income buildings in the city virtually ceased, because condos sell for higher prices. (It’s only recently, with the boom in rents, that larger – often very large – rental apartment buildings are being constructed once again.)
Residential buildings constructed before 1979 are almost universally subject to San Francisco’s ordinance strictly regulating rent increases and tenant evictions.
Sales & Values by Neighborhood
Pursuant to the previous chart, sales are concentrated in those districts of the city mostly built out prior to 1940. Many of these areas were considered “working class” neighborhoods at the time of construction, such as the Richmond district, the Noe Valley area and the Inner Mission, however these buildings were also constructed in areas that have always been highly affluent, such as Pacific Heights. (A 6081 square foot, 2-unit Edwardian in Cow Hollow recently sold for $6m.)
Median Sales Prices by Number of Units
This chart tracks the trend in median sales price appreciation since the current recovery began, breaking out buildings of 2, 3 and 4 units. Two-unit buildings typically sell at a premium (on a dollar per square foot basis) in San Francisco due to condo-conversion rules. Dramatic short-term fluctuations in prices, such as what occurred for 3-unit buildings in Q1 2015, should not be taken too seriously until substantiated over the longer term. Since there aren’t that many sales of any one type of building in any one quarter, median prices can jump up or down simply because of the particular basket of unique properties that sold in the time period.
Longer-term trends are always the most meaningful. The recent upward trend in values is clearly illustrated below.
Sales Volume since 1994
The quantity of 2-4 unit building sales fluctuates due to the booms and recessions that affect all types of real estate. But it is also affected by distinctive factors. Over the past 40 years, many of these buildings have been converted into condos or, more recently, exclusive-use TICs, both of which are considered different (and more valuable) property types: With hardly any new 2-4’s being built, inventory declines. Also, properties that in the past would have been sold as a single 2-4 unit building are sometimes now being sold as separate TIC units to multiple buyers.
It is also true that there are few political issues more furious in San Francisco now than tenant evictions, housing affordability, TIC conversions and condo conversions, and how it plays out – in public opinion, changes to city regulations, legislative efforts and ballot proposals – significantly affects this market.
The net result is that, even with the huge market recovery of the past 3 years, sales are down over 40% from 15 years ago.
Sales Prices to List Prices, Days on Market, Price Reductions
83% of the sales of these buildings in Q1 2015 sold without going through price reductions. They sold quickly and averaged a sales price 7% over asking price – all of which indicates a strong market of high buyer demand and inadequate supply of inventory to purchase. In April, as Q2 began, the market got hotter still (not shown on chart).
Note that overpricing not only means that the property takes much longer to sell subsequent to price reductions (if it does sell), but typically means it will sell at a lower price than if it had been priced correctly to begin with.
Sales by Price Range
As in the type, size and quality of buildings, the range in sales prices for 2-4 unit buildings in San Francisco is enormous: In the past year, it has run from under $500,000 to over $6,000,000. As mentioned before, factors include location, condition, parking, views, era of construction, vacant units, tenant profile, protected tenants, rents, past evictions, owner-occupancy and condo conversion potential, and possible future changes to tenant eviction laws.
New Listings, Properties for Sale, Listings Accepting Offers
Market activity to a large degree ebbs and flows with the seasons: The spring selling season is typically the most active, followed by the autumn. Activity usually drops off during the summer, and, especially, the winter holidays.
Days on Market
A look at trends in average dollar per square foot values in different city districts: The greater Richmond district area; the greater Noe, Eureka and Cole Valleys district; and the prestige, northern neighborhoods running from Pacific Heights and Marina to Russian, Nob & Telegraph Hills.
Note that every time the time period or the exact neighborhoods being analyzed are changed, even by a little bit, very general statistical values such as median price and average dollar per square foot may also change, sometimes significantly.
How the values in this report apply to any particular property is unknown without a custom comparative market analysis. Please call or email with any questions or if you’d like information on properties currently on the market.
All information is from sources deemed reliable, but may contain errors, is not warranted and is subject to revision. Numbers should be considered approximate.
© 2015 Paragon Commercial Brokerage & Paragon Real Estate Group