Archive for April 2011 | Monthly archive page

1675 York Street

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138-A Langton Street

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Chronicle: Bay Area Condo Sales & Prices Tanking — the SF Chronicle website — ran an article today, titled “Bay Area Condominium Sales, Prices Tanking”:

From Paragon’s Director of Business Development:

It talks about how financing difficulties, foreclosures and increasing HOA dues have hammered the Bay Area condo market. All of those issues are indeed important factors in today’s market, but they misrepresent recent trends.

First of all, in the Chronicle’s chart from DataQuick, it shows that the 2010 median price for condos in SF ($650,000) is 14.5% below peak values! Of course, we all know values have fallen from peak values in 2007/2008 — that is old news. What the article doesn’t make a big deal of, is that the chart shows that the SF median condo price in 2010 was HIGHER, admittedly by just a little bit, than the median for 2009 ($640,000).

In fact, the median price either increased or statistically stayed the same for 7 of the 9 Bay Area counties, 2009 to 2010, and the median for ALL Bay Area condos sold increased 5% in 2010 ($290,000) over the median for 2009 ($275,000).

For some reason, by some logic, that justifies a headline today about “prices tanking.” By my reckoning, the data actually points to the fact that market values are strengthening a little or, at the very least, have stabilized over the past 2 years.

Now for a few SF condo market statistics, because I can’t really speak to the other counties’ markets. Comparing condo resales (through MLS) in the 1st Quarter of 2010, with the 1st Quarter 2011 just ended:

The total number of SF condo sales increased 19% (“Sales Tanking”???)

The number of distress sales of condos in SF (bank-owned or short sales) increased significantly from 63 to 119, a large jump, however the median price for distress condo sales stayed virtually the same ($421,000 vs. $420,000), and the median price for regular, non-distress condo sales — still 75% of the SF condo market — increased from $683,500 to $699,000. (“Prices Tanking”???)

For all 2-BR condos sold in SF (through MLS), the overall median basically stayed the same ($710,000 vs. $711,500), but for non-distress sales, the median sales price increased from $725,000 in 2009 to $760,000 in 2010.

Looking at the 4 Realtor Districts in San Francisco with the most MLS condo sales, for 2-BR condos:

District 5 (Noe/ Castro/ Haight): the number of sales stayed virtually the same (37 vs. 38) and the overall median sales price increased 4.5% to $773,000.

District 7 (Pacific Heights/ Cow Hollow/ Marina): the number of sales increased 18% (17 vs. 20) and the overall median sales price increased 6% to $967,000.

District 8 (Russian, Nob, Telegraph Hills/ North Beach/ Tenderloin/ Civic Center): the number of sales increased 31% from 26 to 34, while the overall median sales price declined 3% to $762,500. But note that District 8 has neighborhoods of wildly differing qualities, so sales occurring in one neighborhood over another will change the median price, sometimes relatively dramatically. (Districts 5 & 7 are relatively homogeneous in value throughout the districts.)

District 9 (SOMA/ South Beach/ Potrero Hill/ Inner Mission): the number of sales increased 13% from 68 to 79, and the overall median sales price increased 4% to $701,000.

For 1-BR, condo sales in all of SF, the number of sales stayed the same, while the median price for non-distress sales, declined about 5%. It is true that the market for 1 BR condos, especially in certain neighborhoods, has been hit a bit harder by distress sales than other market segments. Distress 1-BR condo sales in the 1st Quarter of 2011 made up a high 31% of sales.

My main quibble with the Chronicle article, as with others they’re run, is not with their statistics, but with the hysteria and lack of context of their headlines and main statements. They’re constantly comparing today with the market-bubble peak 3 to 4 years ago, while ignoring the positive trends of the last 2 years, and their headlines love to crow with more supposedly “breaking” bad news about the SF and Bay Area home markets.

And that is just bad journalism.

Condo sales have actually increased significantly and median prices have either increased a little or basically stabilized.

Home-Buyer Demand Kicks into a Higher Gear April 2011 – Update on San Francisco Real Estate

Case-Shiller Index results for January have recently been published with news of a continuing fall in home values in the United States and most of its metropolitan areas. According to Case-Shiller, home values in the San Francisco Metro Area (5 counties with wildly different markets) have continued to fall – the kicker being that C-S determined the total decline over the past 12 months to be a whopping 1.7%. (January sales reflect accepted-offer activity in November-December, so the data is already 3-5 months old.)

Even the most competent and experienced agent, concentrating on a single market area, seeing virtually every home available and sold, would be hard pressed to estimate the fair market value of any given house – what one reasonably knowledgeable, willing and able buyer would pay for it – within less than a 5% range of value. To those of us in the market day in and day out, prices have appeared relatively stable in San Francisco over the past 20 – 24 months (ever since the big decline of late 2008/ early 2009). It also appears that the employment situation is improving and that optimism regarding the general direction of the economy is growing, which if true, and if it continues, will play a large role in future market conditions.

It may be that home values are falling in the country, state and greater Bay Area – that is beyond our competence to assess – but in San Francisco, 2011 has seen a surge in home-buying demand, and a resultant change in the supply and demand equation. If it continues, it is unlikely to result in a further decline in values. Indeed, the recent changes in market dynamics would typically start to produce an upward pressure on prices. There are many reasons why we do not expect a “double dip” in San Francisco values, reasons which were explored in last month’s market update. Time will tell what the future holds – price declines, increases, stability – but in the meantime, here is a look at recent activity.

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

SF Homes Accepting Offers
The number of listings accepting offers in March dramatically accelerated and was comparable to the activity in April 2010, when buyers rushed to take advantage of the double US and CA home-buying tax credits. And if inventory was higher, the number of accepted offers would almost certainly have been higher as well. Even if we adjust March’s figure down by 5-6% to reflect deals that will fall out of escrow in future weeks, it was still the second strongest month in terms of listings going into contract in well over 2 years – with lower inventory, no tax credits and a very large number of rainy days.

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Percentage of SF Listings Accepting Offers (by Month)
Over a 2-year period: high buyer demand plus relatively low inventory gave March a very high percentage of home listings accepting offers. March’s figure may be adjusted down by 3 – 4 percentage points to compensate for deals that will fall through in coming weeks, but it would still remain among the highest percentages of recent years.

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Percentage of SF Listings Accepting Offers (by Quarter)
Over a 3-year period: The first quarter of 2011 achieved the highest percentage of home listings accepting offers in 3 years, exceeding even spring 2008, when the market in many of SF’s neighborhoods was still peaking.

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SF Homes for Sale
Though beginning to climb, the inventory of homes for sale in the city remains relatively low, especially as compared to demand. We will see if early spring sees the typical surge in new listings. If it does, it will probably feed a further increase in sales.

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Months Supply of Inventory (MSI)
MSI measures how long it would take to sell the current inventory of homes for sale at current rates of market activity. The lower the MSI: the higher the demand and the stronger the market. March 2011 saw the lowest MSI in well over 2 years. For houses, the strongest market segment, the MSI was a very low 2.2 months; for condos, 2.4 months, for TICs and 2-4 unit buildings, 4 months and 3.9 months respectively. For distress home sales (bank-owned properties and short sales), the MSI was an incredibly low 1.8 months (but these deals have a high fall-through rate). An MSI under 3 months would typically be considered a “sellers’ market.”

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Average Days on Market (DOM)
Average days-on-market measures the number of days between going on market and acceptance of offer (for those listings that accept offers). It is a blend of those homes that sell relatively quickly (actually the majority of sales) and those that go through multiple price reductions to ultimately sell after months on the market (which raises the average significantly). Average DOM in March was as low as it has been for years.

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SF Home Sales
The number of sales usually falls dramatically in January and February, reflecting the holiday season slow-down in listing and buyer activity. (Sales are 4-8 weeks behind accepted-offer activity.) March began to reflect the acceleration in the market that began in mid January.

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Median Sales Price for SF HOUSES
January and February usually show a big drop in median price, again reflecting the changed dynamics one sees during the holiday season (the higher end of the market checks out and distress sales increase as a percentage of sales due to ordinary sellers pulling their homes off the market). In March, there was an increase in the median sales price of SF houses to $768,000 – higher than the average median of $734,000 over the past 13 months – reflecting offers accepted in mid-January and later. If we strip out distress sales, March’s median house sales price rises to $840,000. Remember: monthly fluctuations in median price are generally meaningless – until one sees an established trend up or down over an extended period of time.

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Average Dollar per Square Foot for Condos Sold
Jogging up and down over the past 2 years, but reflecting a basic stability. March 2011 increased over the previous 3 months and at $611/sqft was a tad over the average of $599/sqft for the past 25 months. The median condo sales price in March was $635,000, which is a mix of the median price for distress condo sales ($390,000) and the median price for regular condo sales ($725,000). Again, monthly fluctuations are generally meaningless until reflected in an established trend over an extended period of time.

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SF Luxury Homes Accepting Offers
The luxury home market, defined in this chart as homes $1,500,000 and above, also accelerated in February and March. The months’ supply of inventory for luxury homes was a very low 2.7 months in March.

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SF Distress Home Sales
March saw an increase in the number of distress homes – bank-owned properties and short sales – to its highest level ever, adding up to about 20% of total sales. Distress sales often take much, much longer to close – and indeed, probably about 25 – 30% of accepted offers on distress home listings fall out of escrow and never close at all due to their difficulties – so a fair number of these sales probably went into escrow in late 2010. Though distress sales now occur everywhere in the city, they continue to be clustered in the less affluent neighborhoods and the lower price ranges. So far, they have not affected the market dynamics of many of the more affluent areas of the city. Of the 94 distress sales in March, 39 were houses and 49 were condos, with the remainder being 2-4 unit buildings. San Francisco still has a much lower rate of foreclosures and distress sales than California or the greater Bay Area.

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Distress Home Listings Accepting Offers
The deal fall-through rate is much higher for distress home transactions, so the number for March – a very high 150 units – will certainly decline over the coming weeks, but March still showed a large acceleration of distress home deals going into contract. Even more interesting is that the median LIST price of distress homes accepting offers fell dramatically in March to $389,000 – a huge drop from any of the last 24 months (18% below February’s) – while the median list price for non-distress homes ticked UP to its second highest point in 10 months. The SF markets for distress and non-distress homes seem to be going in different directions, an unusual disconnect – and it may simply be a temporary anomaly. In any case, March’s surge in distress home listings going into contract appears to have been powered by very, very low list prices.

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Median Sales Price: Distress vs. Non-Distress Listings
The hash-marked bars show the median price of distress home sales, and the solid bars, the median price of regular home sales. Not to overstate it, but In some ways these are 2 different markets with a separate group of buyers willing to deal with the aggravation, condition, and to some degree, location, of distress home sales in order to get a deal. Interestingly, there has been a general trend downward in the median price for distress home sales recently – $450,000 in March – and a mild trend upward in the median price for non-distress homes ($771,000 in March). Not enough to make a concrete determination of trends yet. Distress home sales play a significant role in pulling down the overall median sales price (for ALL sales), and yet in many areas of the city, typically the more affluent neighborhoods, distress sales are not at this time a significant percentage of transactions.

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Mortgage Rates
In this 3-year chart from, one sees the increase from the historic lows of last autumn, however rates are still very low as compared to any year prior to 2009.

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