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San Francisco Real Estate Home Prices, Sales & Statistics; Stock Markets; Interest Rates and Unicorns in Spring

A substantial portion of Q1 statistics reflect new listings and accepted offers occurring during the mid-winter market doldrums (Thanksgiving to mid-January). In November and December 2018, the stock market plunged drastically from its all-time high in September, and interest rates hit their highest point in years: these factors negatively affected buyer demand. Then both turned in dramatically positive directions in early 2019. So, Q1 statistics reflect economic conditions in both Q4 2018 (very negative) and Q1 2019 (very positive). It is also the quarter with the lowest sales volume.

The spring selling season – whose data starts to show up in March, but is mostly reflected in Q2 – is the most active of the year, and also typically sees the highest rates of appreciation. As always, there are many economic factors at play impacting Bay Area markets, some of which are discussed below.

Year-over-Year & Longer-Term Trends

Median Sales Prices

Median house sales prices dropped dramatically from last spring, but then spiked up again in March 2019. Spring is typically the season when median prices increase most.

The biggest change since last spring as been a switch from high year-over-year quarterly appreciation rates to zero appreciation and a slight decline in the last 2 quarters. What occurs this spring will be critical to understanding market trends.

New Listings Coming on Market

Year-over-year, there was a plunge in the number of new listings coming on market in Q1 – new listings almost always climb from January through March, but not this year. Were sellers waiting for a hoped-for rush of new IPO millionaires to appear? Will new listing inventory jump now that the IPOs have begun to occur? Q2 will provide much more data regarding the media-frenzy “IPO effect.”

Luxury Home Sales

There has been a significant drop in MLS sales of luxury condos. The jump in the number of new, luxury (and ultra-luxury) condos being built is creating a surge of supply that has increased the competition between sellers for buyers’ attention. (Many new-project luxury condos are neither listed nor their sales reported to MLS, and so are not reflected in this chart.)

Selected Economic Factors
Stock Markets & Unicorn IPOs

A wild ride in stock prices, particularly in high-tech: Prices soared to new peaks in summer-early autumn 2018, plunged drastically in Q4 2018, and then saw the biggest Q1 jump in 20 years. Huge amounts of wealth appearing, disappearing and reappearing – a major influence on consumer confidence and home-buyer demand.

A new surge of large, high-tech unicorn IPOs – mostly of firms headquartered in SF – has just started to roll out. IPOs have historically created vast quantities of new wealth in the Bay Area, though the magnitude of the effect of this new wave on the SF housing market is yet unknown – but currently fiercely disputed. Anecdotally, there have certainly been reports of buyers moving more quickly to beat the “rush of new millionaires” and of sellers waiting to list in order to catch the rush (see New Listing chart above).

Employment

A gigantic factor underlying Bay Area housing markets has been the staggering increase in employed residents since 2010. Outward-bound migration trends of residents and businesses – often citing housing costs as one major motivator – have been an increasing concern in recent years, but for the time being, employment numbers have continued to grow.

New Home Construction

Due to a number of factors, including a rapid increase in land and construction costs, new housing construction in SF dropped dramatically in 2018. The quantity of new homes being built plays a significant role in the supply and demand equation, and thus home prices.

Interest Rates

There has been a stunning decline in mortgage interest rates from mid-November 2018 through the end of March, from 4.94% to 4.06% – to the enormous advantage to buyers. Big drops such as this have helped to recharge buyer demand in the past.

Housing Affordability & Household Incomes

This chart calculates the income required to buy a median-price house in Q4 2018. Median condo prices are substantially less in every county and would require lower incomes.

County median household incomes are broken out below for homeowners and tenants – some Bay Area county incomes are among the highest in the country. However, comparing the chart below to the one above illustrates the disparity between prevailing incomes and the incomes required to purchase in the Bay Area.

Health & Economic Indicators

According to a 2018 ranking of state health conditions by the Commonwealth Fund, California ranks 14th in the nation (1st being best – Hawaii). According to CountyHealthRankings.org, Bay Area counties are at the top of the list within CA for Overall Health Outcomes: Marin, San Mateo and Santa Clara rank 1, 2 & 3, while SF is 8th. On the less positive side, SF has the highest income inequality ratio in the state.

The San Francisco Real Estate Spring Market Begins

Spring 2018 was one of the hottest markets in SF and the Bay Area in the last 2 decades. Then the market began to cool in summer and autumn – demand, sales and appreciation rates generally dropping, while supply and price reductions increased – before the mid-winter doldrums took hold. The magnitude of these changes varied by county, with SF less affected than many others, but still certainly affected.

Since the recovery began in 2012, spring has typically been the most active season of the year, and usually the period during which appreciation gains have been the largest. The spring 2019 market is just getting started amid a diverse set of economic indicators. Financial markets have, so far, recovered in 2019, interest rates have dropped, and big local IPOs loom. We will know much more soon.

Long-Term, Annual Median Price Trends

Short-Term Median Price Trends
3-Month Rolling Figures

Looking at 3-month rolling median sales prices, the SF median house price was virtually unchanged on a year-over-year basis, while the median condo price (second chart below) ticked up a little – but the critical issue is what will happen in the spring months, when sales volumes are much higher.

Median Sales Price Appreciation
1998 – 2018, by District

Markets appreciate due to a wide variety of local and macro-economic reasons: economic cycles, industry booms, inflation, consumer confidence, interest rates, employment, gentrification, new construction, comparative affordability (to other nearby markets), population growth, buyers’ median age, commuting, fashion, and so forth. The combination of factors affecting any particular neighborhood or district in the city is often specific to that market.

In SF and around the Bay Area, more expensive homes have generally appreciated less than more affordable homes, especially over the last 3-4 years. On the other hand, during the last downturn after 2008, the prices of more expensive homes usually declined significantly less. These appreciation percentages should be considered very approximate.

House Median Sales Price Changes
1998 – 2018

Condo Median Price Changes
1998 – 2018

What’s for Sale in San Francisco
as of March 1, 2019

Active Listings by Price Segment
March 1, 2019

The number of active listings fluctuates daily, and the numbers below are increasing as more new listings come on market. These next 3 charts are snapshots of active listings on March 1st.

Houses for Sale by District
with Median LIST Prices. 3/1/19

The supply of listings available to purchase varies widely between city districts, which can be a simple reflection of market size and/or an indicator of supply and demand dynamics. If median LIST prices (below) are well above 2018 median SALES prices (delineated earlier in this report), it is typically a sign that the balance in listings for sale is disproportionately weighted towards higher priced properties, where demand is softer – and/or a sign of overpricing beyond what buyers consider fair market value.

Condos for Sale by District
with Median LIST Prices, 3/1/19

Market Seasonality
New Listings Coming on Market

New inventory usually starts pouring into the market right now, in early spring, to fuel the biggest selling season of the year.

Active Listings on Market

Sales Volume by Month – General Market

The number of sales in the first 2 months of 2019 was down from the same period of 2018, but these are the 2 lowest sales-volume months of the year. A much more significant indicator will be what occurs over the next 4 months during the classic spring selling season. Sales are a somewhat lagging indicator, as they mostly reflect new listings and accepted-offer activity in the previous month or two.

Luxury Home Sales by Month

Market Statistics by City District

In SF and around the Bay Area, higher-priced areas have generally had somewhat cooler markets than more affordable markets in recent years, which is reflected in the next 4 charts. But home price is certainly not the only factor at play in these different neighborhoods.

Sales Price to Original List Price %

Any percentage over 100% reflects overbidding of asking price. Though these percentages have declined somewhat in the past 6 months, they are still incredibly high compared to most other places in the Bay Area and the U.S..

Unlike the house market, various city districts have seen high volumes of newly constructed condos in the last 3 to 4 years, and the increased supply has affected the condo markets in those areas.

Average Days on Market by District

Comparing Bay Area Markets
Homes for Sale under $1 Million
as of March 1, 2019

Bay Area Luxury Homes for Sale
as of March 1, 2019

Bay Area Median Sales Prices, Q4 2018

On a quarterly basis, the highest median house sales price in the Bay Area has been alternating between San Francisco and San Mateo Counties.

County to County Migration

People move to SF and the Bay Area from all over the country and the world, and people leave to move to a vast number of locations, for differing reasons. This analysis looks at those counties with the greatest number of people moving to and from SF. In many cases, there is a large exchange between 2 counties, with residents going in both directions. Often, but not always, the outward flow is greater to counties with more affordable home prices, but there are many factors – such as schools, employment and quality of life issues – at play. (Cook County is where Chicago is located.)

Demographics Snapshot
Educational Attainment
San Francisco vs. U.S.

San Francisco, as well as the greater metro area, is very highly educated against national norms.

Education & Income
Disparity between the Sexes

An indicator of the income-generating value of education, along with an unhappy indicator of where progress remains to be made in income equality. (As an aside, real estate is certainly one of the first professions that saw income equality established between the sexes: Women have been holding their own and sometimes dominating rankings of top Bay Area agents for many decades.)

The statistics in this report are very general and approximate indicators based upon listing and sales data pertaining to assortments, of varying size, of relatively unique homes across a broad spectrum of locations and qualities. How these statistics apply to the current value, appreciation trend, and prevailing market conditions of any particular property is unknown without a specific comparative market analysis.

San Francisco Real Estate Heading into the 2019 Market

As of early February, the government shutdown is over – at least for a little while – the stock market has recovered dramatically from its late 2018 plunge, and interest rates are well down from November highs. A good number of large, local, high-tech “unicorns” continue to plan IPOs in 2019. All these are positive economic indicators for the Bay Area real estate market – but indicators have proven to be quite volatile over the past 5 months and future movements are not to be taken for granted.

As detailed in our last report, there was considerable cooling in the market in the second half of 2018. The month of January typically has the fewest sales of the year, sales which mostly reflect activity during the December market doldrums: We don’t consider its data to be a reliable indicator of conditions or trends. But activity is picking up, and the beginning of the spring sales season – which in the Bay Area can start as early as February – will soon provide more direction as to where the market is heading.

San Francisco Home Value Trends
Median House Sales Prices by Month
since 1990

Median sales prices often fluctuate by month and by season. It is not unusual for them to spike to new peaks during the spring selling season, and then decline and/or plateau afterward (until the next spring). So, the question is: What’s going to happen in spring 2019?

Median Condo Sales Prices by Month
since 2005

Median condo sales prices, especially on a monthly basis, can be confused by new-project condo sales reported to MLS, which sometimes occur in quantity in a single month. Monthly fluctuations are common, and it is always the longer term trend that is most meaningful.

Home Sales Breakdowns

Since the market recovery began in 2012, home sales at prices under $1 million have dropped by 68%. This chart shows the migration of sales to higher price segments.

Condos sales in San Francisco significantly outnumber house sales, and this trend will continue with the ongoing construction of new-condo projects. The most common property type for sales in the city was the 2-bedroom condo at a 2018 median sales price of $1,375,000. The dominant house sale was of 3 bedrooms at a median sales price of $1,560,000.

Compared to more suburban Bay Area counties, San Francisco is a city of relatively small, older homes occupied by relatively small households: Almost half of SF housing was built before WWII, 61% of homes are of less than 1500 square feet, and, per census data, 38% of SF households consist of a single person. SF also has the lowest percentage – 4.5% – of children under the age of 5 of any major city in the country.

San Francisco Luxury Home Sales

While luxury home sales from $3 million to $4.99 million have steadily increased since 2012, home sales of $5 million and above have, to a large degree, plateaued in recent years. [Sales reported to MLS]

Luxury House Sales by District

Luxury Condo, Co-op & TIC Sales by District

San Francisco Long-Term Rent Trends

Generally speaking, there should be a relatively close correlation between home prices and rents: They constitute the 2 main options for paying for one’s housing. It is not an apples-to-apples comparison, because there are other issues at play, such as building equity, the ability to remodel and improve, certain tax advantages (though greatly diminished under new tax laws) and so on. If home prices continue to appreciate while rents plateau or decline, it can be a warning sign of an imbalance in the market – if it extends beyond the short term.

Did Someone Say Multi-Cultural?
Bay Area Demographic Snapshots

Before looking at the charts below, here is today’s demographics quiz question: What 4 nationalities account for the origin of the highest numbers of Bay Area residents?

Neighborhood Appreciation Trends – Selected Districts

There are 70-odd SF neighborhoods in 10 Realtor districts, so we can’t cover all of them here – but if you would like information on one not included, please let us know. We track prices and trends in all of them.

Realtor District 7 is the most expensive house district in SF – consisting of Pacific & Presidio Heights, Cow Hollow & Marina – but we didn’t include it on the first chart, because its median house sales price is so much higher – over $4.7 million in 2018 – that the trend lines of the other districts would be flattened.

Median House Sales Price Trends

Average House Dollar per Square Foot Trends

Median 2-Bedroom Condo Sale Price Trends

Stock Prices & Interest Rates

As seen in the first chart below, the changes in the S&P 500 Index have been dramatic since the 2016 election, seeing an enormous jump to its most recent peak in September 2018 before entering a period of substantial volatility. Ups and downs and major volatility in financial markets – and their effects on household wealth – can play a large role in local real estate markets, especially in the higher price segments.

As illustrated in this next chart, the movements in the S&P 500 have been distinctly modest compared to the stock price changes of some of our local high-tech giants. It has been has been a wild, queasy ride for investors and stock-owning employees – and for many home buyers.

If the big unicorn IPOs go forward as expected, and the market greets them enthusiastically, that could play a substantial role in demand as thousands of employees suddenly feel considerably more affluent.

Interest rates appeared to be headed relentlessly higher, but instead dropped sharply since the latest November 2018 high point. Substantial declines in interest rates can spark renewed buyer motivation to purchase.

Market Indicators by Property Type & Price Segment

The next 4 charts divide first the house market and then the condo, co-op and TIC market by price segment, for trends in average days on market and months supply of inventory. For both of those indicators, lower readings signify stronger demand as compared to the supply of listings available to purchase. Generally speaking, demand has been stronger for houses than condos, and for lower price segments than for higher. The ultra-luxury condo and co-op market in particular – prices of $3m+ – is seeing high readings in these statistics. Certainly part of the issue is the new luxury condo projects coming on market and swelling supply.

House Market Stats by Price Segment

Condo, Co-op & TIC Market Stats by Price Segment

The ultra-luxury segment here – priced $3 million and above – is seeing distinctly higher months supply of inventory and days on market readings, reflecting appreciably softer supply and demand dynamics.

San Francisco Real Estate Looking Back on 2018

There were almost too many local, national and international political, economic, social and ecological factors impacting the 2018 market to count. In the first half of the year, market conditions were about as hot as they’ve ever been, and there were staggering year-over-year appreciation rates. Come summer/early autumn, real estate and financial markets began to shift distinctly cooler. Looking at 2019, there are many wild cards whose impacts are difficult to predict: extremely volatile financial markets, fluctuating interest rates, contentious national politics, international trade issues, spiraling debt levels, employment growth – and a dramatic surge of local high-tech unicorns that plan to go public, which could create a tsunami of new wealth in the Bay Area.

Year-over-Year Annual Appreciation

Comparing 2018 to 2017, the median house sales price jumped 13% or $185,000 to $1,600,000 – the largest annual dollar increase ever (not adjusted for inflation) – and the median condo price increased by $60,000 to $1,210,000.

Year-over-Year Appreciation by Quarter

When one breaks 2018 down by quarter, it is clear that the big increases in price occurred in the first half of the year, after which the median house sales price declined. By the 4th quarter of 2018, the quarterly, year-over-year median house appreciation rate had basically dropped to zero. Condo prices were basically flat Q2 to Q4. This trend of high appreciation rates in the first half plunging during the second half was relatively common around the Bay Area.

Home Prices by San Francisco Neighborhood

The city has more than 70 neighborhoods, and our tables of median house and condo prices by bedroom count run 6 pages. Below the map are 4 tables of selected neighborhoods – let us know if you would like the full reports.

SF Home Sales by Price & Property Type

SF Housing: Era of Construction

Luxury Home Sales Trends
Short-Term & Long-Term

As seen in the next 2 charts, luxury home sales have, generally speaking, held up quite well in San Francisco, though there was an increase in high-end listings withdrawn from the market without selling (3rd chart below).

The number of luxury home listings that were pulled off the market without selling climbed at the end of 2018. Many will be re-listed in 2019.

Selected Market Indicators

The dramatic decline in house listings coming on market (red line) has been a major factor in the median house price appreciation rate since 2012. Condo listing inventory has been significantly impacted by new-condo construction during this period.

Price reductions and listings pulled off the market without selling both hit new highs since the recovery began in 2012.

Hiring has continued to fuel the SF and Bay Area economy. So far, it has continued to hold up.

After a big jump in autumn, interest rates saw a drop of similar magnitude through the first week of January, which is good news for real estate markets.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

Bay Area Real Estate Markets Survey

We are always hesitant to make too much of a single month’s or a few months’ data: Short-term fluctuations in median sales prices and other market statistics are not uncommon and don’t always give definitive perspective as to where the market is heading on a longer-term basis. Still, many of the changes seen over recent months are substantial – and none more so than the sudden plunge in year-over-year median price appreciation rates illustrated below: a number of counties plummeted into negative territory in November, and the others saw drastic declines.

Again: It is important not to make too much of short-term data. Indicators can also be somewhat schizophrenic at the beginning of a significant market transition – if that is what is occurring – as buyers, sellers and agents struggle to figure out a changing reality.

As a sample of a month by month progression over the past year: Santa Clara County may have been the hottest market in the country in 2017 through early spring 2018. Then it started cooling off more rapidly and more definitively than most other Bay Area markets. This shows up in a number of statistics, including declining year-over-year appreciation rates, as illustrated below.

Q3 2018 Median House Sales Prices

What the Median Price Buys by Bay Area County

Bay Area median home prices vary enormously, and so does what one actually gets for those median prices: From a 3-BR, 2-BA, 1418 square foot home in Oakland to a 4-BR, 3-BA, 2460 square foot home in Lamorinda and Diablo Valley (in Central Contra Costa). Comparing median sales prices is not an apples-to-apple calculation of value.

Bay Area & CA Appreciation since 1990

Bay Area Appreciation since 1990 by County

San Francisco Home Price Appreciation

As a sample of county median price trends, below is a chart illustrating 3-month-rolling median price movements in SF itself – 3-month rolling data doesn’t fluctuate as wildly as monthly prices sometimes do, though there are clear seasonal changes. It’s not unusual for median sales prices to drop from springtime highs, but the drop this year in the median house price (the top blue line) has been somewhat longer and deeper than is usually the case: By November, it was $145,000 below the peak hit in April 2018.

Bay Area vs. U.S. Appreciation since 1987

The below chart based on S&P CoreLogic Case-Shiller data – which uses its own algorithm to measure home price appreciation instead of median sales price changes – compares real estate market cycles between the Bay Area and the United States over the past 30 years.

U.S. Comparative Home Values by City

One can buy approximately 14 median-priced 3-bedroom homes in Philadelphia, 10 in Houston, 4 in Miami or Portland, or 2 in Seattle, for the cost of one in San Francisco.

Bay Area Median Lot Sizes

Depending on the county or community, the amount of elbow room around your home – as measured by median lot size – also varies. Even the most expensive homes in San Francisco, costing $20m to $40m, often sit right next to each other. In other counties, at the upper price ranges, one sometimes gets rolling acreage or vineyards.

Bay Area Median Condo Prices & Appreciation

Sales Volumes by County

Bay Area Luxury Home Markets

There was no overall plunge in Bay Area luxury home sales this autumn: Year over year, sales ticked up about 6% in the 3-month period.

However, results varied by county: Santa Clara County – with more $3 million+ sales than any county in the state – saw a year-over-year decline of 14%. San Francisco luxury house sales were up 16%, but its luxury condo sales were flat. San Mateo was up 17%, Marin down 16%, Alameda and Contra Costa up 11%, and wine country luxury home sales increased by 26%. (Different price thresholds were used for the luxury designation depending on county.) These widely varying ups and downs muddy the picture of where the Bay Area luxury market is heading.

By a nose, San Francisco luxury condo sales top the list for highest average dollar per square foot values.

The Bay Area has a wide range of options in big, high-priced homes, with Atherton – recently designated the most expensive zip code in the country – and the neighborhoods of Pacific & Presidio Heights in San Francisco at the top of the price scale. (For those who don’t like yard work, there’s the option of a lavish penthouse condo or co-op in Russian Hill or South Beach.) There are homes or estates selling above $5 million – sometimes far above – in every county in the Bay Area, except Solano.

Supply & Demand Indicators

After 7 years of strong market recovery (or “up cycle”), there are preliminary signs of notable shifts in the market – but the magnitude of the changes vary considerably by statistic and by county. Though everyone wants to jump to definitive conclusions, it would be premature to confidently predict the course of a sustained, longer-term transition, if that is what is occurring. There are a lot of spinning plates in local, national and international economies and politics right now.

Listings vs. Sales

Though not especially high by historical standards, the overall supply of listings on the market has been appreciably increasing this autumn – to its highest level in 4 years (as charted below) – but sales volume in September-November 2018 was down about 12.5% on a year-over-year basis (not charted). That’s about 2000 fewer sales.

Generally speaking, during the recovery since 2012, an inadequate and often decreasing number of listings met increasing and sometimes feverish demand from buyers, adding immense upward pressure on home prices. For the time being at least, that pressure is now subsiding as the balance between supply and demand shifts.

Overbidding & Under-Bidding

As demand declines and inventory increases, the competition between buyers – and the need to overbid asking price to win the sale – subsides. Seasonality plays a big role in this statistic, and there are still many homes selling for over asking price, but the overall average Bay Area sales-price-to-original-list-price percentage has dropped below asking price – by a smidge – for the first time since January 2017.

Price Reductions

The dramatic increase in price reductions is a stark indicator of changes in the supply and demand dynamic. October saw a massive spike, but September and November numbers were also much higher than in the previous 6 years. Price reductions are a measure of the difference between buyer and seller expectations as to fair market value.

Expired & Withdrawn Listings – No Sale

The increase in listings taken off the market without selling – which jumped to about 2000 in November – is another indicator of disconnect between what sellers are willing to accept and buyers are willing to pay. Expired/withdrawn listings typically peak in December, so we may see a further increase next month. Many sellers who pull their homes off the market in November and December will try again next year.

Mixed Economic Indicators

Housing affordability is a huge social, political and market issue in the Bay Area. Though very low, current affordability percentages – as calculated by the CA Association of Realtors Affordability Index – are not quite as low as in 2007. (We cover affordability in a separate report.)

Bay Area Rents

Most economists expect to see something of a balance between what it costs to buy or to rent a home, but since 2015, rent increases have either moderated, or, in the case of San Francisco, rents have declined, while home prices and interest rates have increased substantially.

Employment

Since the last recession, the Bay Area has been one of the greatest job creating machines in the world. Unemployment rates are currently bumping along at historic lows.

Money, Money, Money

The astonishing amount of venture capital sloshing into the Bay Area affects the overall economic environment and its housing markets. When start-ups go public they can pour additional, immense quantities of new wealth into the pockets of founders, investors and employees – and then into the surrounding economy. Some major local unicorns have stated their intention to go public in 2019, though continued stock market volatility may affect those plans.

Local median household incomes have risen well above the national median. Among other factors, the people moving into the Bay Area tend to be more affluent than those moving out. (However, local poverty rates have also risen in recent years.)

Stock Prices

The S&P 500 saw an incredible surge in value from January 2016 through late September 2018 – rising about 50% – but its increase looks distinctly modest compared to the astounding share price movements of some of our local high-tech giants. Soaring stock values make people feel wealthier, more optimistic about the future, more willing to take on new debt, and more positive about buying new homes (and everything else). But when financial markets get volatile, sometimes seeing sudden, precipitous declines – as has occurred in recent months – buyers often become cautious.

Note that as of early December, financial markets have lurched up and down again since their late November lows, i.e. a queasy, high market volatility continues.

Interest Rates

Through spring 2018, home buyers appeared to shrug off concerns about rising interest rates, but that seems to be changing as rates continue to adversely affect affordability. Besides mortgage costs, increasing interest rates affect debt of all kinds, and whether private, corporate or governmental, debt levels around the world are generally at historic highs. High debt plus rising rates can be a dangerous economic indicator.

Population Growth & Migration

Increasing populations without a concomitant increase in new housing pressures rents and prices. Right now, California and Bay Area populations continue to grow, but at a reduced rate from recent years. Of course, population growth itself has both positive and negative economic and quality of living effects depending on the viewpoint.

The new U.S. Census state-to-state migration data for 2017 is illustrated below. Generally speaking, the Bay Area has followed state trends, i.e. more people moving out than moving in domestically, but that deficit more than made up by foreign immigration. Employment and/or cost of living issues, including housing affordability, are probably the dominant factors in these migration figures. It will be interesting to see whether the new 2018 federal tax law changes and the increasingly negative U.S. government attitude to immigration affect 2018 migration figures.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

30+ Years of Bay Area Real Estate Cycles

The CoreLogic S&P Case-Shiller high-price-tier Home Price Index for the 5- county San Francisco Metro Area, illustrated above by the blue line, applies best to more expensive Bay Area housing markets such as most of San Francisco, Marin, San Mateo and Diablo Valley/Lamorinda. The SF Metro low- and mid-price tiers had much more dramatic bubbles and crashes in 2005-2011, but as of December 2017, have ended up at points a bit higher than the high-price tier. The green line tracks home price appreciation for the United States as a whole. The Case-Shiller Index is predicated on a January 2000 price of 100. “250” signifies a price that has appreciated 150% since January 2000.

Financial-market cycles have been around for hundreds of years, from the 1600’s Dutch tulip mania through our recent speculative frenzy in crypto-currencies. Though cycles vary in their details, their causes, effects and trend lines are often similar, providing more context as to how the market works over time.

Human beings have always been worried about (or terrified of) the future, and going back many thousands of years, we have constantly attempted to predict what it holds. However, 2018 © Compass whether using priests, oracles, astrologers, economists, analysts or media pundits, we show no aptitude as a species for having the ability to do so with any accuracy. In 2012, a NobelPrize-winning economist, famous for housing market analysis, said that the U.S. real estate market might not recover “in our lifetimes.” In hindsight, we now know that the recovery had already begun in some markets such as San Francisco. In 2015, during a period of financial market fluctuations and a slowdown in our local high-tech boom, a very well-respected Bay Area economist predicted that there would soon be “blood in the streets of San Francisco.” But then housing and stock markets soared higher and the high-tech boom dramatically strengthened again. (He has since postponed the arrival of blood until 1919 or 1920.)

Our smartest experts can’t get it right, much less the thousands of glib, confident forecasts by utterly unqualified individuals reported on in the media every month. We can’t even remember the mistakes of the recent past – one reason why we don’t seem to be able to escape the curse of recurring cycles – much less foretell what’s going to happen tomorrow. Which leads to the next point.

It is extremely difficult to predict when different parts of a cycle will begin or end. There is no rule regarding how long the different parts of a market cycle will last. Boom times, even periods of “irrational exuberance,” can go on much longer than expected, or get second winds, with huge jumps in values. On the other hand, negative shocks can appear with startling suddenness out of nowhere, often triggered by unexpected economic or political events that hammer confidence, adversely affect a wide variety of market dominos, and then balloon into periods of decline and stagnation. These negative adjustments can be in the nature of a bubble popping, the slow deflation of a punctured tire, or some combination of the two.

Going back many decades, all the major Bay Area recessions have been tied to national or international economic crises. Considering the fundamental strengths of the local economy, absent a major natural disaster, it is unlikely that a major downturn would occur due simply to local issues. However, local issues can exacerbate a cycle: The 1989 earthquake intensified the effects of the national recession in the early 1990’s; our greater exposure to dotcom businesses produced a spike up and down with the NASDAQ bubble & 2000-2001 crash; and our current, raging high-tech boom has poured fuel on our up-cycle during the current recovery.

All bubbles are ultimately based on irrational exuberance, runaway greed, criminal behavior, or all three mashed up together. Whether exemplified by junk bonds, stock market hysteria, gorging on debt, a corporate Ponzi-scheme mentality, an abandonment of reasonable risk assessment, and/or incomprehensible and dishonest financial engineering, the bubble is relentlessly pumped bigger and tighter.

However, it should be noted that the 2008 crash was abnormal in its scale, and much greater than other downturns going back to the Great Depression. The 2005-2007 bubble was fueled by home buying and refinancing with exorbitant, unaffordable levels of debt, promoted by predatory lending practices such as deceptive teaser rates, no-down-payment loans and an abysmal decline in underwriting standards. The market adjustments of the early 1990’s and early-2000’s saw declines in Bay Area home values in the range of 10% to 11%, as compared to the terrible 2008 – 2011 declines of 20% to 60%. (Bay Area prices are now above their 2007 peaks.)

Whatever the phase of the cycle, many people think it will last forever. Going up: “The world is different now, profits don’t matter, and there’s no reason why the upward trend can’t continue indefinitely.” And when the market turns: “Homeownership has always been a terrible investment and the market will not recover for decades.” But the economy mends, the population grows, people start families, inflation accumulates over the years, and the 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 jumped back in – or “exploded” might be a better description – and home prices started to rise again. Then kept rising as consumer confidence returned; ultimately moving into over-confidence and irrational exuberance. The nature of cycles is to keep turning.

As long as one doesn’t have to sell during a down cycle, Bay Area homeownership has almost always been a good or even spectacular investment (though admittedly if one does have to sell at the bottom of the market, the results can be painful). This is due to the ability to finance one’s purchase (and refinance when rates drop), certain tax benefits, the gradual pay-off of the mortgage (the “forced savings” effect), inflation, and long-term demographic and appreciation trends.

The best way to overcome cycles is to buy a home for the longer term, one whose monthly cost is readily affordable for you now, ideally using a long-term, fixed-rate loan, while keeping an adequate financial reserve for emergencies – and then resisting the urge to use your home as an ATM during times of significant appreciation. If one keeps to those rules, then it usually true, quoting a NYT editorial, “Renting can make sense as a lifestyle choice… As a means to building wealth, however, there is no practical substitute for homeownership.”

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

Mixed Signals in San Francisco Real Estate Market

Autumn markets in counties around the Bay Area have seen significant shifts, with wide variance in the magnitude of these changes between counties. So far, San Francisco itself has seen less dramatic changes than other local markets such as Santa Clara and Sonoma Counties.

Homes that sell have generally continued to sell quickly, at prices often well over asking. Median sales prices are considerably higher on a year-over-year basis. However, listing inventory has climbed, sales volume has dropped, and the numbers of price reductions and expired listings have increased. Luxury house sales hit a new all-time high in San Francisco. Luxury condos hit a new sales peak for the month of October, but the number of listings hit a new all-time high.

Market statistics are generating contradictory readings amid a background of financial market and political volatility, and rising interest rates. Some standard statistics take time to reflect changes on the ground, and will bear watching in coming months.

Median Sales Price Appreciation
4 Views

Long-Term Annual Trends since 1993
(2018 figure reflects YTD sales)

In recent years, house price appreciation has far outpaced that of condos.

3-Month Rolling Median Price Trends since 2005

Year-over-Year Comparisons, 2016-2018: S
an Francisco, San Mateo, Santa Clara Counties

Appreciation percentages can change rapidly in these year-over-year comparisons.

Monthly Median Price Changes since 2012
COMBINED House and Condo Median Sales Prices

Monthly and seasonal fluctuations are very common.

Supply & Demand Statistics

More new listings came on market in autumn 2018, providing buyers with more choices and lessening the sense of urgency and competitive bidding.

The number of active listings on the market is significantly higher than in October 2017, 2015 or 2014, but comparable to October 2016 and 2013. Further increases might considerably alter the supply and demand dynamic.

Looking at the past 3 months, sales volume has dropped about 2% year over year. September 2018 saw the lowest volume of any September in 10 years, but then September is not typically a high volume month: It mostly reflects accepted-offer activity in August when the market slows way down.

October 2018 saw the highest number of price reductions in 6 years. Some other counties saw much more dramatic increases. This is an important indicator of changing market conditions.

The number of expired and withdrawn listings – no sale – started to climb in October 2018 above previous years. December is the big month for listings being pulled off the market for the mid-winter holiday slowdown. This statistic will bear watching to see if there is a big jump in homes that sellers have not been able to sell at prices they consider acceptable.

Average percentage of sales price to original list price (overbidding) declined from the heat of the spring selling season, as is typical, was lower than in October 2017, 2015 or 2014, but higher than in October 2016.

Looking at the past 3 months of median sales price to final list price percentages, overbidding varied greatly by property type and by price segment, and some rates remain staggeringly high. But the increased number of listings undergoing price reductions this autumn has generally not yet had time to sell and thus be reflected in these statistics – when they do, if they do, they may well lower the rates seen in the charts above and below.

So far, those listings selling this autumn have generally sold relatively quickly. But this statistic won’t reflect properties that have not yet sold, perhaps after necessary price reductions. If the market is in the midst of a sustained transition, future months may see significant adjustments in this metric

Luxury Home Sales Hit New Highs

Houses selling for $3 million and above hit an all-time high – by a tad at 38 sales – in October 2018, as reported to MLS. The great majority of these sales occurred in 2 districts, the Noe, Eureka and Cole Valley district, and the Pacific & Presidio Heights-Marina district – though smaller numbers of sales took place in a wide variety of other neighborhoods. The highest-price sales were for $32 million in Pacific Heights and $16 million in Nob Hill. There were 4.5 months of inventory at the end of October, not a particularly high level of inventory for this market segment, and down 15% from October 2017.

Luxury condos, co-ops and TICs selling for $2 million+ hit their highest point ever for the month of October – 32 sales – but were well below highs hit in previous spring selling seasons. The highest sale in October, as reported to MLS, was for $10.9 million – a 3200 sq.ft. unit in the St. Regis in Yerba Buena. However, the number of active listings also hit an all-time high in September (144) and October (141) – 11% higher than October 2017, the previous peak (not illustrated on the sales chart below). The months supply of inventory stood at 6.5 months, which would be considered high as compared to the last 5 years – and does not include many new-project luxury condos not listed in MLS.

SF District Median Sales Price Appreciation
since 2005

San Francisco Houses

Short-term fluctuations are not particularly meaningful as pertaining to changes in fair market values – and big fluctuations are more common in more expensive areas. What are important are the longer term trends

San Francisco 2-Bedroom Condos & Co-ops

New condo construction can muddy the water of apples-to-apples comparisons of median condo sales prices over time, but the the general trends are still relatively clear.

In Pacific Heights, a neighborhood of big, very expensive houses, both median sales prices and average dollar per square foot values (illustrated below) have dropped from peaks hit in 2015- 2016.

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis.

These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

© 2018 Compass

San Francisco Early Autumn Market Report

Due mostly to seasonal issues, median sales prices typically drop in Q3 from Q2 peaks, and did so this year as well. The median SF house price was up 15% and the median condo price was up 4% from Q3 2017. The other Bay Area counties also saw substantial year-over-year increases in median home sales prices in Q3 2018.

New Listings & Price Reductions
September is always a big month for new listings coming on market in San Francisco – typically with the highest number of the year – and this year they jumped 28% higher than in September 2017 to hit their highest point in years.

The number of price reductions in September also increased: 37% over 2017 and 18% over 2016. October is usually one of the two biggest months of the year for price reductions as sellers of unsold listings make a last attempt to grab the attention of buyers before the mid-winter slowdown begins in mid-November.

The number of active listings on the market on a given day in September was somewhat higher than last year, but a bit lower than in September 2016.

What will tell us most about where the market is heading is how buyers respond to these new listings and price reductions, and that information won’t be available until autumn’s listings have time to accept offers, and accepted offers have time to close escrow – in quantity – to give us their data. October is usually a very big month for sales in San Francisco as buyers jump on the surge of listings.

Bay Area Statistics by County

Jumps in listings and price reductions have been common around the Bay Area, and in some counties, the changes are much more pronounced than in SF: Sonoma saw a 122% increase in price reductions amid an active inventory of listings 90% higher than in September of last year. Santa Clara County saw staggering increases, but much of that is due to the fact that inventory was incredibly, abnormally low last year, when Santa Clara was perhaps the hottest real estate market in the country.

Days on Market, Overbidding &
Months Supply of Inventory

So far, we are not seeing significant shifts in these 3 standard measurements of market heat.

Price Tables by Neighborhood & Bedroom Count

Below are selected excerpts from 10 pages of tables breaking down SF home sales over the past 12 months. If a field is left blank, it signifies that there weren’t enough sales for statistical analysis; if a price is asterisked, it means there were only 3 or 4 sales in the period. We are happy to provide the full collection of tables upon request.

House Sales

Condo Sales

The Luxury Home Market

As with the general market, September is typically a very important month for new luxury home listings and October a big month for sales. For the past 3 years, October has been the biggest month of the year for luxury house sales of $3m+. Even more so than the general market, the luxury market goes into a precipitous slowdown from just before Thanksgiving to mid-late January.

It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis.

These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

© 2018 Compass

The Multi-Unit Residential Property Markets of San Francisco, Alameda & Marin Counties

The big political issue facing the market is CA Prop 10, which, if passed in November, repeals the limits on local rent control laws enacted in the Costa-Hawkins Rental Housing Act. This would almost certainly have negative ramifications for owners of multi-unit residential properties in San Francisco and Oakland. The CA Legislative Analyst Office does a good job summarizing the issues: Prop 10 Review. Prop 10 is currently creating something of a shadow on the larger apartment building market, with some buyers waiting for election results – much as happened with SF Prop G did in 2014. (Prop G failed and the market rallied dramatically after Election Day.) However, the market certainly did not grind to a halt in Q3, nor did values plunge.

Historically speaking, it has been difficult for rent control measures to pass on a statewide basis, because homeowners, all of whom are potential landlords, outnumber tenants in California. On this issue, people tend to vote their financial interests, and homeowners generally vote in higher percentages than tenants. Strong rent-control measures are generally found only in tenant-majority communities. All of which is not to take for granted what will occur on November 6.

This report generally separates out the 2-4 unit and the 5+ unit apartment building markets, since they have different dynamics and values. All the statistics herein are broad generalities covering a wide variety of buildings of very different location, age, size, quality, condition, tenant profile, income and income potential. The number of sales in many of the segments is relatively small, which can make the statistics more prone to anomalous fluctuations.

Some charts pertain to multiple counties, and others drill down on statistics specific to San Francisco; some track the last 12 months of sales, and others have a final data point reflecting 2018 YTD sales. All numbers should be considered good-faith, general approximations.

Trends in Residential Rents

This chart below tracks longer-term average asking rent trends, instead of median asking rent appreciation since 2012, as illustrated in the charts above. It provides a bit more historical context.

Sales, Prices & Market Trends

2-4 Unit Buildings

5+ Unit Buildings: Inventory, Sales & Values

The inventory of active listings ticked up in the last 2 quarters.

SF 5+ Unit Buildings: Trends in Gross Rent Multiple,
Cap Rate & Dollar per Unit Value

Many of the standard value parameters have remained remarkably
consistent in San Francisco over recent years.

San Francisco New Construction Pipeline

Almost 70,000 housing units are now in the SF new construction pipeline. Plans are constantly being added, revised and abandoned, and new housing construction is extremely sensitive to changes in economic conditions.

Q3 2018 Sales of San Francisco 5+ Unit
Apartment Buildings

San Francisco is a unique residential-investment market: the buildings are smaller and older than in most places, built in a wide range of architectural styles. The great majority of the market is under rent control, which makes upside rental-income potential a big component of valuation, even if it is unknown when that potential might be realized. Within the city the variety in buildings and units is enormous.

In real estate, the devil is always in the details: If you are interested in further insight into the details of any of the above sales, or regarding properties currently on the market, please contact me.

Broker Performance in
Residential Multi-Unit Property Sales

In the summer of 2018, Paragon and Pacific Union merged into Compass to create the largest residential investment property brokerage in San Francisco.

It is impossible to know how median and average value statistics apply to any particular apartment building without a specific, tailored, comparative market analysis. Statistics are generalities: This is especially true for multi-unit properties, with the enormous range of property types, sizes, conditions, circumstances, qualities, financial data and locations. We are often dependent upon listing agents for income and expense details, which can be of varying accuracy. A percentage of investment property sales are not reported to MLS, which sometimes limits our ability for more comprehensive data analysis.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

© 2018 Compass

CoreLogic S&P Case-Shiller Home Price Index Update

The CoreLogic S&P Case-Shiller Home Price Index does not evaluate median sales price changes, but employs its own proprietary algorithm to measure home price appreciation over time. Since its indices cover large areas – for example, the San Francisco Metro Area is comprised of 5 counties – which themselves contain communities and neighborhoods of widely varying home values, the C-S chart numbers do not refer to specific prices, but instead reflect prices as compared to those prevailing in January 2000, designated as having a value of 100. Thus a reading of 250 signifies that home prices have appreciated 150% above the price of January 2000 (with its reading of 100).

Case-Shiller divides all the house sales in the SF metro area into thirds, or tiers. Thus the third of sales with the lowest prices is the low-price tier; the third of sales with the highest sales prices is the high-price tier; and the third in between is the mid-price tier. The price ranges of these tiers changes as the market changes. The 3 tiers experienced dramatically different bubbles, crashes and recoveries over the past 18 years, to a large degree determined by how badly the tier was affected by the subprime financing crisis. The low price tier was worst affected – huge bubble, huge crash, most dramatic recovery – and the high-price least affected (but still deeply affected).

Most of the house sales in expensive counties such as San Francisco, Marin and San Mateo, as well as affluent communities in other Bay Area counties are in the “high price tier”, and that is where we focus most of our attention. In fact, much of the house market in San Francisco and other very expensive markets would qualify for an “ultra-highprice
tier,” but C-S does not break that out. All counties, to some degree, have sales in all 3 price tiers.

The Index is published 2 months after each month delineated – the July index was released in late September – and reflects a 3-month rolling average, so in effect, it is looking into a rear-view mirror at the market 3 to 5 months ago.

The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa: Alameda and Contra Costa are by far the largest markets; SF itself comprises only about 7% of house sales in the metro area. We believe the Index generally applies to the other Bay Area counties as well. There are many dozens, if not hundreds, of unique real estate markets found in such a broad region, with different dynamics, moving at varying speeds, sometimes even moving in different directions. How the C-S Index applies to any particular property is impossible to say without a specific comparative market analysis.

More information: https://us.spindices.com/index-family/real-estate/sp-corelogic-case-shiller

S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPINSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPINSA, September 25, 2018.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.