Blog

New Case-Shiller Index for San Francisco Metro Area

The new S&P Case-Shiller Index for November 2015 for the 5-county, San Francisco Metro Statistical Area was published yesterday. According to C-S, home prices continued to tick up a small bit through the autumn market.

Most of these charts track the “high-price tier” of homes (the upper third of home sales by price), which apply best to San Francisco, southern Marin, San Mateo and central Contra Costa counties. However, note that appreciation rates do vary by market area.

At this point, the next real indication of where the homes market is heading will come after the beginning of the 2016 spring selling season (which can begin as early as mid-late February) and sales begin to close in March and April.

The past 12 months:

image001

Since the recovery began in 2012. One can see in both the above and below charts the extreme seasonality of home price appreciation over the past year and over the past 4 years. Almost all the significant appreciation has been occurring in the spring selling season, when the supply and demand dynamic has been most out of whack, and the competition situation between buyers for new listings has been the most ferocious. Whether this spring will experience this frenzy once again, or whether an inflection point has been reached (for any of a number of potential reasons) causing a more extended plateau in appreciation or even a negative adjustment of some magnitude will soon become evident.

image002

Over the last few real estate cycles:

image003

And this “aggregate” chart tracks all home price segments for the SF Metro Area. Note that the 3 price tiers delineated by Case-Shiller had bubbles, crashes and recoveries of very different magnitudes, and this aggregate chart doesn’t apply well to either the low or high price tiers, but approximates the mid-price tier reasonably well:

image004

Paragon’s full report on the S&P Case-Shiller Home Price Index for the Bay Area is here.

2016 Event Calendar | SF

The San Francisco Real Estate Market in 2015

Architecture, views, probates, penthouses, lofts, TICs, luxury homes, mortgage rates, sales prices, market cycles, and everything else we could think of in a look back on 2015.

1

2

Quarterly Median Price Chart & Monthly Case-Shiller Chart & Sales by Price Range Chart

Despite anxiety about interest rates, financial markets, housing affordability, unending international crises, and possibly over-valued, high-tech unicorns, the Q4 2015 San Francisco median house sales price, at $1,250,000, is up about 11% from Q4 2014. That dovetails nicely with the S&P Case-Shiller Home Price Index for the Bay Area, which measures appreciation in a different way, but also calculated 11% annual appreciation (through October, its last report). The Q4 condo median sales price, at $1,125,000, is up 13% year over year, but that is influenced by the greater percentage of more recently built, and more expensive, units in the sales mix.

We’ve also updated our popular price maps of San Francisco neighborhoods and the greater Bay Area: Home Price Maps

3

San Francisco has seen 3 extended periods of home construction: The first ran from the Gold Rush to the 1906 earthquake, when 28,000 buildings were destroyed. The second went from the post-quake rebuilding, with the construction of thousands of Edwardian houses and multi-unit buildings, through the big WWII population surge. Many districts such as the Marina and Sunset/Parkside were built out in the period from 1920 to 1950, with Spanish Mediterranean (in many variations), Marina-style and Art Deco being common architectural styles.

The city’s population then went into major decline during the subsequent 3 decades and construction plunged. The third era of homebuilding is all about new condo construction, which began around 1980, ebbed and flowed dramatically with the economy, and is currently booming once again.

Early San Francisco Architecture

43

A look at a few of the distinctive niches of the market.

5

San Francisco is famously a city of gorgeous views. For the simple reason of verticality, more condos have views and, generally speaking, more panoramic and spectacular views, than houses. Many other lovely views add to SF home value as well: sweeping city views; park views; marina views; views of Alcatraz, Marin and Mt. Tamalpais; and of the East Bay and Mt. Diablo. A few lucky (typically, very affluent) condo owners have staggering vistas from the windows on all 4 sides of their high altitude units.

6

After being bludgeoned in 2015 by thousands of articles, predictions and warnings regarding interest rates, here is a look at how much they actually changed over the course of the year: approximately one seventh of one percent. Per recent signals from the Fed, presumably mortgage rates will rise in 2016, but expectations over the last 6 years have been confounded far too often to be sure. Significant increases would certainly worsen the affordability equation for homebuyers financing their purchases.

10 Factors behind the San Francisco Market

Seasonality: Waiting for Spring

7 8

The 2 charts above illustrate the extreme seasonality of the market, both in the numbers of new listings coming on market, and the percentage of listings that accept offers (a measurement of supply vs. demand). The second chart also shows that the market for homes under $2 million has been hotter than the luxury home market: There are fewer buyers at the ultra-high end, and luxury homes are also most prone to significant overpricing.

The spring selling season – which actually started in February last year – is typically the most feverish, and this is especially true for luxury homes: Notice, in the 2nd chart, the huge spike in demand for luxury homes last spring.

More statistical, supply and demand graphs: San Francisco Market Overview Analytics

Average Dollar per Square Foot Values

9 10 11

High-end home sales hit new peaks in spring 2015, but with the stock market volatility in late August and September, the market softened, inventory increased (to its highest level ever) and sales dropped about 17% in October on a year-over-year basis. (Affluent buyers and sellers are most influenced by financial market volatility.) However, the stock market then recovered and stabilized in October and buyer confidence improved, which is reflected in the year over year increase in sales that occurred in November and December. Remember that closed sales in one month generally reflect the heat of the market  in the previous month, when the transaction was actually negotiated. Q4 2015 sales ultimately ended slightly up from Q4 2014.

Charts: Luxury House Sales by Neighborhood and Luxury Condo Sales by Neighborhood

Details, Amenities & Size

12 13

The above details are as described in MLS by listing agents, so the numbers are very approximate. Also note that what most people might see as a unit above a laundromat, an enthusiastic listing agent might see as a “rarely available luxury penthouse.”

14 15

One of the reasons the Pacific Heights district has by far the highest house prices in the city is that its average house size is so much larger. However, its mansions also command a very high dollar per square foot value, as seen in one of the earlier charts.

16

The sales of condo shall continue to make up a larger and larger share of overall home sales in San Francisco, as new condo construction continues apace.(Condos also turn over more often than houses.) Very few new houses are built in the city – they are usually big, high-tech, beautiful and costly.

Where the Most Home Sales Occur

17 18 19

San Francisco is very much a boutique market for multi-unit buildings: Our apartment buildings are generally much smaller, older and, for that matter, more gracious than those found in the suburbs. These properties are often at the heart of fierce controversies pertaining to rent control, tenants’ rights, tenant evictions, and condo conversion rules. There has been an immense increase in market-rate rents over recent years – SF is the most expensive rental market in the country– though rules restrict increases for existing tenants of buildings built before 1979 (i.e. almost all of our multi-unit properties).

The Bay Area Apartment Building Market

20

The tenancy-in-common unit with an exclusive right to occupy, aka the TIC, is a property type rarely found outside of San Francisco. It was originally created as both a way to get sellers of multi-unit properties significantly more money – the individual unit sales adding up to more than the purchase of the entire building by one buyer – as well as providing a lower-cost alternative for homebuyers, since TICs typically cost 10% to 15% less than comparable condos. (The TIC phenomenon also generated significant legal fees for the lawyers who came up with the idea.) Because of changes in tenant-eviction law and condo-conversion rules, financing and other issues, the number of TIC sales has plunged since its peak in 2007. On the other hand, some TIC units are now selling for jaw-dropping prices: In 2015, 4 sold for over $5 million. The median TIC sales price last year was $947,000.

Map of San Francisco Neighborhoods

21

Preparing Your Home For Winter

Getting-Ready-for-Winterv3

Source : Parascopesf.com

The Fed Interest Rate Increase

On Wednesday, the Fed increased its key interest rate for the first time in 7 years – by .25%. So far, it has had a tremendous effect on the FHLMC average 30-year mortgage interest rate: It soared from 3.95% on 12/10/15 to 3.97% on 12/17/15.

image001

Heading into the Holiday Slowdown after an Interesting Autumn Market

Median sales prices in October and November jumped back up to levels similar to the spring peak selling season. It’s important to remember that median prices are not a perfect reflection of changes in fair market value: They often fluctuate due to seasonal inventory and buyer-profile trends, as well as issues such as an influx of new-construction listings. It is the longer-term trend that is most meaningful – however we can say with confidence that there was clearly no significant “crash” in prices this past autumn.

Median_SFD-Condo_by-Qtr_Short-term

12-15_SP-OP_All-Sales_by-Month

One indication of the heat of the market is the extent to which sales prices are bid up over asking prices.As is not untypical, the market becomes less competitive in November as it heads into the winter holidays. Still, an average sales price 6% over asking price would be considered crazy-hot in any other market in the country (though one also has to adjust for the fact that serious underpricing has become a not uncommon listing strategy in the SF market).

Case-Shiller_High-Tier_since-2012_V2-bar-chart

This chart based on S&P Case Shiller Home Price Index data illustrates the seasonality of home price appreciation in the past 4 years: surging in our feverish spring selling seasons, and then generally plateauing through the rest of the year. Note that Case-Shiller looks at home prices in a totally different way than median sales price trends, and probably reflects changes in fair market value more accurately. Case-Shiller Index numbers refer back to a January 2000 value of 100, thus the current Index reading for higher-priced Bay Area homes of 217 signifies home prices 117% above January 2000.

As we enter the winter holiday market slowdown, the next real indication of the direction of the market will come in the first quarter of 2016. Will spring 2016 repeat the overheated, high demand/ low supply frenzies of previous springs or has the market finally reached a longer term plateau or an inflection point? We shall soon know more.

Our full report is here: S&P Case-Shiller Index for SF Metro Area

Unit-Sales_by-Price-Range-2015

n 2015 YTD, the dominant price segment for home sales in San Francisco was $1,000,000 to $1,499,000. As seen in the first chart above, the median sales prices for both condos and houses fall within this range. Note the change from just two years ago.

San Francisco Luxury Home Market

Condo-Sales_1500k-plus

Lux-Homes_Units_Sold_by_YEAR

Lux-SFD_Sales_2m-plus

The high-end home market is the most seasonal segment in the city (as well as the most sensitive to sudden, large, negative movements in the financial markets). Market activity starts to plunge in November, hits its nadir in December, begins to pick up in the first quarter and then usually hits its peak in spring. Much of the center of gravity in the luxury market has been shifting in recent years from the city’s prestige northern neighborhoods to other districts of the city, such as the greater Noe Valley area and the South Beach/Yerba Buena district. This is not to say that the northern districts are not still both very expensive and considered highly desirable, and the greater Pacific Heights area still dominates the market for the most expensive houses in the city, i.e. those selling for $5m and more.

12-15_SP500_vs_Shanghai-Composite

After the semi-hysteria – already half forgotten – that erupted in late August and September regarding the Chinese stock market and its impact on the U.S. stock market and economy, and possibly the Bay Area housing market, we thought it interesting to take a look back at how it has played out so far.

Average_30-Year_Mortgage-Rates

It is widely expected that the Fed will raise interest rates in December, probably by some minimal increment, but for the time being, as of the first week of December, rates have remained below 4%.

In November, we issued two mini-reports, one on Bay Area housing affordability and another on San Francisco new housing construction. Below are the featured charts and links to the full articles.

Affordability_Bay-Area-Counties_Chart

Bay Area Housing Affordability & Market Corrections

Q3-15_Pipeline-Net-New-Housing-Units_by-Stage

San Francisco New-Housing Pipeline Update

Information regarding San Francisco neighborhood prices and trends can be found here: San Francisco Neighborhood Values

Additional market analyses are here: San Francisco Market Reports

New Case-Shiller Home Price Index Report

This chart gives an exceedingly clear illustration of the seasonality of home price appreciation over the past 4 years. Summer/autumn plateau in 2015? It’s happened to a large degree every year since 2012. We won’t really know where the market is headed next until we see what happens in early spring 2016. (Barring some large, negative economic event before then.) image001

The higher priced home segment led the way in 2012 recovery in Bay Area, while the lower priced segment lagged because of having to deal with the huge hangover of the distressed property crisis. That started to equalize in late 2013 and 2014, and in 2015, more affordable homes began to overtake higher priced homes in the rate of home-price appreciation (as measured against values in January 2000). Case-Shiller is just starting to reflect a Bay Area dynamic that we’ve clearly been seeing playing out on the ground over the past year in San Francisco.

image002

And one of our longer-term charts. Charts for the mid-priced and low-priced tiers can be found on our website. The high-price tier applies best to most of San Francisco and San Mateo, central/southern Marin, and central Contra Costa.

image004

San Francisco Holiday Events Calendar

San Francisco New-Home Construction

The SF Planning Department just released updated Q3 information regarding the new-housing development pipeline. San Francisco is in the midst of one of its biggest new-housing construction booms in history. (The same is occurring on the commercial development side, but this report won’t deal with that.) Indeed, it often seems that new projects of one kind or another are being announced on an almost daily basis, and a detailed map delineating all projects in some stage of the pipeline makes many city districts appear to have measles.

Q3-15_Pipeline-Net-New-Housing-Units_by-Stage Q3-15_San-Francisco_New-Housing_Pipeline-Map

New housing construction has lagged population pressures for decades – pressures which have soared during the current economic and employment boom – and now there is a scramble to address the inadequacy of housing supply, and, for developers/investors, to reap the rewards of a high demand/low supply dynamic in one of the most affluent and expensive housing markets in the world.

As of September 30th, there were approximately 59,000 housing units of all kinds – luxury condos, rental apartments, market rate and affordable units, and social project housing – in the relatively near-term pipeline (next 5 to 6 years). Most are in the Market Street corridor area, the Van Ness corridor just above Market Street, and in the districts to the southeast of Market Street (see map). If we add the mega-projects planned for Candlestick-Hunter’s Point, Treasure Island and Park Merced, which may take decades to become a reality, the number jumps to over 80,000. As a point of context, there are approximately 382,000 residential units in San Francisco currently. About 3500 new units were added in 2014.

Housing supply and affordability issues, strong feelings about neighborhood gentrification and tenants’ rights, and even simple NIMBYism (or in SF, NBMVism, “not blocking my view!”) make development the most contentious political topic in San Francisco. Furious battles are ongoing in the Board of Supervisors, the Mayor’s office and the Planning Department; with neighborhood associations and special interest groups; and at the ballot box. Development is not for the faint of heart or shallow of pocket: One cannot contemplate building virtually anything in the city without vehement opposition and sometimes a well-funded coalition in opposition. For developers, the equation to be penciled out includes high costs, enormous hassle-factor and extended project timelines on one side, and the potential for large financial returns on the other. In new San Francisco developments, condos often sell for $1250 per square foot and above, and 500 square foot studio apartments can rent for up to $3500 per month.

Of the units in the greater pipeline of 80,000 units, over 9000 units are designated as “affordable housing” – but about 5000 of those are in the long-term Candlestick-Hunter’s Point and Treasure Island projects. Because of the nature of the political environment, much to do with how much affordable housing will be built is in flux. Many developers are in intense negotiations with government agencies and neighborhood associations to find a workable compromise between return on investment on one hand, and unit mix and affordable housing requirements on the other. Said requirements may consist of a percentage of units in the project, building affordable units elsewhere in the city, or contributing substantial amounts to the city’s affordable housing fund in lieu of building.

New housing construction is very sensitive to major economic, political and even environmental events (i.e. natural disasters), so simply because something is in the pipeline doesn’t mean it will be completed as planned within the timeframe contemplated. First of all, plans are constantly being changed just in the normal course of things. And if a big financial or real estate market correction (or crash) occurs, as happened in late 2008, projects in process can come to a grinding halt, and new projects substantially altered, delayed or abandoned. Because the timeline in San Francisco can run 3 to 6+ years from initial filing with Planning to construction completion, developers and their lenders make enormous financial bets on what the future will look like. Timing is everything in real estate development, and can make the difference between large profits and bankruptcy. When the music stops – which it always does sooner or later, though the time range of opportunity can vary greatly – not everyone will find a chair to sit down in. That especially applies to those who over-leveraged their projects.

As a side note, big Chinese developers have been investing in both large residential and commercial real estate development projects in the Bay Area, and, according to reports, continue to aggressively seek additional opportunities. Though significant – constituting billions of dollars in investment – these projects do not constitute the greater part of Bay Area development.

Housing Affordability and Market Corrections – Paragon Report

A look at San Francisco Bay Area housing affordability trends over time and how they intersect with real estate market corrections:

image001

The 2008 San Francisco Bay Area real estate crash was not caused just by a local affordability crisis: It was triggered by macro-economic events in financial markets which affected real estate markets across the country. It’s important to note that in the past, major corrections to Bay Area home prices did not occur in isolation, but parallel to national economic events. Ongoing speculation onlocal “bubbles” often neglect to remember this.

Still, dwindling affordability is certainly a symptom of overheating, of a market being pushed perhaps too high. Looking at the chart above, it’s interesting to note that the markets of all Bay Area counties hit similar and historic lows at previous market peaks in 2006-2007, i.e. the pressure that began in the San Francisco market spread out to pressurize surrounding markets until all the areas bottomed out in affordability. This suggests that one factor or symptom of a correction, is not just a feverish San Francisco market, but that buyers can’t find affordable options anywhere in the area. We are certainly seeing that radiating pressure on home prices occurring now, starting in San Francisco and San Mateo (Silicon Valley) and surging out to all points of the compass.

San Francisco, with a Housing Affordability Index (HAI) reading of 10% is about 2% above its all-time historic low in Q3 2007, but affordability in most other Bay Area counties, while generally declining, still remain significantly above their previous lows. By this measure, the situation we saw in 2007-2008 has not yet been replicated.

Significant increases in mortgage interest rates would affect affordability quickly and dramatically, as interest rates along with, of course, housing prices and household incomes, play the dominant roles in this calculation.

Note that Affordability ratios are just one relatively blunt measuring tool, and there are certainly other factors at play affecting our real estate market: local (high-tech boom; surging population, employment and wealth; inadequate housing supply, rental rates, etc.), national (financial markets, unemployment rates, consumer confidence, etc.) and, nowadays, even international economic factors (such as recent events in the Chinese stock markets and the EU).

Information on the methodology behind the California Association of Realtors’ HAI can be found here: www.car.org/marketdata/data/haimethodology/

Speaking of financial markets, we decided to take a look at how the recent volatility played out in the S&P 500 and the Shanghai stock indices. These indices are constantly fluctuating, but the general picture has not altered significantly since we graphed this in early November:

image002