June 2011 Update: High Demand + Low Supply = A Strong May Market

Last year, in May of 2010, the market began its hangover from the exuberance of the double-tax credit rush (which expired in April 2010), a hangover that generally continued through summer of 2010. In contrast, in San Francisco, May of 2011 continued the dynamic of strong buyer demand and limited inventory that began earlier this year. May’s accepted offer activity was up over 25% compared to May of 2010, with an inventory of homes for sale that was 11% below last year’s. Distress-home sales in the city, which climbed to their highest levels ever in early 2011 (and hammered the overall median price), declined significantly in April and May.

Median sales prices and average dollar per square foot figures in SF climbed significantly in the last 2-3 months — which, to some degree, is what one would typically expect from our supply and demand situation. We will have to wait to see if these trends continue or are simply normal (and relatively meaningless) statistical fluctuations.

SF unit home sales are up about 4% YTD over 2010 — without any tax credits — but more importantly, the strong demand that collapsed last year after April shows no sign yet of collapsing this year.

According to the Case-Shiller Index, prices for the 5-county San Francisco “Metro Area”, declined 5% from March 2010 to March 2011 (the latest C-S data available), but in the city itself, and certainly in its better neighborhoods, we are not generally seeing the value declines that appear to be occurring elsewhere. This may be because of our unique circumstances: being a financial center, high affluence and education, comparatively low foreclosure rates, the resurgence of high-paying high-tech employment in the Bay Area (and new IPO money), the lack of room to expand and/or simply being one of the most appealing and beautiful cities of the world.

It will be interesting to see what the summer holds, but right now, neither the statistics nor the view from the street currently supports the view of a declining-value market in San Francisco.

MEDIAN SALES PRICE is that price at which half the sales occur for more and half for less. It can be, and often is, affected by other factors besides changes in market values, such as short-term or seasonal changes in inventory or buying trends. If market values are truly changing, the median price will consistently rise or sink over a longer term than just 2 or 3 months.

Statistics are generalities, subject to fluctuation due to a variety of reasons. All information herein is derived from sources deemed reliable, but may contain errors and omissions, and is not warranted. Sales not reported to MLS are not included in this analysis.


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SF Homes Accepting Offers
In April of 2010, buyers rushed to take advantage of last year’s double tax credit — and then business slumped. This year, the strong market that began in the spring has continued in May. Even if we calculate that 6% of the accepted offers now showing for May ultimately fall through, the year over year increase in deal-making is over 25%. With significantly lower inventory than last year.


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SF Home Sales by Price Range
The big increase has been in the number of lower-priced home sales. To a large degree, this is a function of the surge in distress-home sales in the first 3 months of 2011. Which has since tapered off.


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Inventory of Homes for Sale
The first chart graphs the number of new listings coming on market by month: May 2011 had 12% fewer new listings than May 2010, which has a large impact on the market. The second chart graphs the total number of home listings available for sale within a given month: inventory this spring has been well below the levels of 2010. May of 2011 had over 300 fewer listings on the market than May 2010, and yet the number of accepted offers this year was much higher.


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SF Median House Sales Price
This chart shows the median house sales price by quarter over the past 3 years by distress house sales, regular (non-distress) houses, and all house sales. In SF, the distress house market and the regular house market are generally two different markets: different price ranges, often different neighborhoods and condition, different buyers. The median sales price plunged in January and February because distress home sales soared as a percentage of sales, and the higher end market usually shuts down for the holidays (affecting closed sales in January/ February). In March, the median sales price for regular homes started to bounce back, which accelerated in April and May. We are still well below peak values in 2007 – 2008. Though things look positive, it is much too early to draw definitive conclusions about value trends: median prices often jump up and down without any great significance to values.


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SF Median Condo Sales Price
While the median sales price for distress-sale condos has continued to decline, the median sales price for regular condos has bounced up dramatically over the past couple months, and is now higher than it has been in years. Whether this is a temporary anomaly or the beginning of a trend is unknown at this point. There has been a large squeeze on the inventory of condos for sale as the remaining new condo developments have sold out (and not been replaced by new developments). We are still well below peak values in 2007 – 2008.


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Average Dollar per Square Foot
One can assess value not only through median prices (which can be affected by other things besides changes in value) but by what buyers pay on a dollar per square foot basis. In the last couple months, the average dollar per square foot has increased for houses, condos and 2-4 unit buildings. (TICs are not included because the sales data rarely contains their square footage.) The fact that all these property types are showing parallel increases may indicate a market trend toward higher values — which is typical of the combination of high demand and limited inventory — but it is too early to tell.


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Percent of SF House & Condo Listings Accepting Offers
This chart clearly shows the dynamic of strong buyer demand and low inventory. A much higher percentage of house and condo listings have been going under contract (accepting offers) in the last 3-4 months than at any time in the past year.


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Average Days on Market (DOM) & Months’ Supply of Inventory (MSI)
The top chart shows the average number of days between a house or condo listing going on market and accepting an offer (for those homes accepting offers). The lower chart graphs MSI: how long it would take to sell the existing inventory of houses and condos for sale at existing market conditions. As a buyer demand heats up, one expects to see that properties are accepting offers more quickly and that the months’ supply of inventory is decreasing. That is what we’ve been seeing in San Francisco since spring began: in each case, the statistic is lower or about as low as it has been for the past 2 years.


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SF Luxury Home Sales
In this chart, a luxury home is a house, condo or TIC selling for $1,500,000 or more.


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SF Unit Home Sales since 1994
After the years of decline, the number of home sales in SF started to recover in 2010 and 2011 from their low points in 2009. The exception is in TIC sales, which have continued to decline due to issues with financing, tenant eviction and condo conversion.


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New-Condo Construction & Sales
With the financial blow-up of 2008, new condo construction declined hugely, which, of course, led to the large decline in new development condos on the market. This is another factor of decreased inventory available for buyers to purchase. Since large developments take years from breaking ground to going on market, no significant reversal of the recent decline in new-condo inventory is expected soon.


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SF Distress-Home Listings & Sales
Distress home listings peaked at the end of last year, which created a peak in the number of sales in early 2011. (Distress sales often take much longer to close than regular sales due to issues with bank bureaucracy.) The surge in low-end distress home sales in early 2011 depressed the city’s overall median sales price (while not necessarily affecting values). However, for the time being, both the numbers of distress home listings and sales have declined markedly from their peaks.


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Home Sales & Distress Sales as Percentage of Total Sales
The number of closed sales in May 2011 was lower than that of May 2010, mostly due to the frenzy of buyer activity in April 2010 to qualify for the double tax credit. The lower hash-marked areas delineate the number of distress sales, and the percentages at the top of the bars show the percentage of distress home sales as a percentage of total sales. These percentages peaked in early 2011 (again, hammering the overall median sales price) but have since declined significantly in April and May. Overall unit sales of all SF homes are up about 4% YTD as compared to 2010 – with no tax credit and significantly lower inventory of homes available to purchase.


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SF Distress House Sales by Realtor District
Though distress house sales (bank-owned properties and short sales) can now be found throughout the city, the large majority continue to be located in the two, less affluent, southern border districts running from Bayview to Oceanview (which have been hammered by foreclosures). In many of the other districts, distress house sales as a percentage of sales is too low to impact the values in those areas. The median price for distress house sales in the city typically runs in the $450,000 to $500,000 range.


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SF Distress Condo Sales by Realtor District
Distress condo sales can be found throughout the city, but are clustered in the greater SOMA/ South Beach area, where most of the huge new condo developments were built in the last 10 years. Distress condo sales are generally at the lower end of prices.


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Interest Rates (from Bankrate.com)
Interest rates have been declining again recently and are incredibly low by any historical standard.