Blog

San Francisco September Newsletter

September is typically the single month with the highest number of new listings coming on market in San Francisco, a big spike in inventory which fuels the relatively short autumn selling season. Very early indications are that this September may be a very big new-listing month, and how buyers react to the flood of new inventory will provide more clarity as to where the market may be heading next. That data will start becoming available in October.

Long-Term Trends in Median Sales Prices
& Average Dollar per Square Foot Values

These first two charts look at appreciation trends in median prices and average $/sq.ft. values since 2005. The short-term fluctuations in the lines are normal, typically seasonal effects of no great meaningfulness.

As of August 2018, the 3-month rolling median sales prices are as follows: $1,620,000 for houses, $1,200,000 for condos, and $1,125,000 for TICs.

San Francisco Home Sales
by Price Segment

Houses selling for less than $1 million are becoming an endangered species in SF, limited to small homes and/or fixer-uppers in the most affordable neighborhoods. Condos and TICs now dominate sales under $1.5 million.

Four Standard Statistics of Supply & Demand
Year-over-Year Comparisons since 2011
These 2 charts below compare the June-August periods for the last 8 years. These statistics have been moving in parallel during this period, which make them more trustworthy as true indications of market trends.

As illustrated in the first chart, the inventory of listings available to purchase continues to be constrained, and the overbidding percentages, especially for houses, remain at insane levels (though part of this has to do with a strategy of under-pricing by many listing agents).

Home Value Appreciation by City District
Since 2015

Coming out of the long, post-crash housing recession in 2012, homes all over the city began appreciating very rapidly, led at first by the most expensive neighborhoods, and this lasted through mid-late 2015. Then, in the last 4 months of 2015, financial markets went into a period of extended volatility and unease (Chinese stock market and oil price crashes, Brexit and election anxieties), which ran through the 2016 election. At the same time hiring in high-tech temporarily slowed and high-tech IPO activity ground to a halt. New condo construction in the city also soared, changing the supply and demand dynamic for that property type. These factors had significant effects on the luxury home and condo segments.

Since 2015, appreciation of houses has far outpaced that of condos, and homes in more affordable areas have appreciated much faster than in more expensive neighborhoods. The lower the home prices, the higher the appreciation rates. However, virtually all segments saw a dramatic surge of demand in late 2017 through spring 2018, propelling values quickly higher.

House Values: More Expensive Districts

Though the median house sales price in the very expensive Pacific Heights-Marina district has not increased in the past 3 years – in fact, it has seen a small overall decline – it is worth noting that from the beginning of 2012 to the end of 2015, it appreciated by a whopping 87%.

Partial year data should be considered preliminary until full year results are available in January.

House Values: More Affordable Districts
In these neighborhoods, large bursts of appreciation have been common in recent years, as the pressure of buyer demand shifted to a search for affordability.

Condo Values: More Expensive Districts
As with houses, the most expensive neighborhoods for condos have seen limited or no appreciation in median sales prices since 2015.

Values in Other Major Condo Districts
The large South Beach-SoMa-Mission-Potrero Hill-Dogpatch district has been ground zero for the greatest number of large new-condo projects coming on market. That led to a drop in median sales price in 2016, but in 2018, prices jumped dramatically in all 3 districts illustrated below.

San Francisco New Housing Pipeline
The number of units somewhere along the line in the SF Planning Department new housing pipeline hit almost 70,000 in Q2 2018, however developers face increasing challenges in land and constructions costs, reportedly the second highest in the nation, as well as issues pertaining to affordable housing requirements, neighborhood activism, possible increases in rent control measures, and the lengthy review and approvals process. The outlook in new housing construction can shift very quickly if economic conditions change.

Projects of 20-Plus Units under Construction
The main areas for new home construction – of both condos and apartments – are the greater South Beach-SoMa-Potrero Hill district, and the Market Street and Van Ness Avenue corridors. These are the areas where large, previously commercial-use lots can be used for building large projects, and where zoning often allows for much taller buildings.

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 Real Estate Market Report

We are pleased to announce that Paragon Real Estate has joined forces with Compass in order to deliver a new level of support and service for our clients. Founded in 2012, Compass is a real estate technology company now operating in 30 regions with over 90 offices across the United States, including New York City, San Francisco, Los Angeles, Chicago, Boston, Seattle, Washington D.C., Dallas and Miami. With the merger, the Compass Bay Area team consists of more than 500 agents closing more than $4.5 billion in annual sales volume.

While we wait for the autumn selling season to begin in September, this report will take a look at SF and Bay Area market trends from a variety of angles, starting with home prices.

Market Seasonality & the Autumn Selling Season

Inventory and demand ebb and flow dramatically in the SF market, as illustrated by the two charts below. The spring selling season is the most active overall, a period in the Bay Area that can stretch from late February to mid-June. The market then slows down for the mid-summer holidays. Autumn is the second major selling season, but is much shorter, running from after Labor Day to early-mid November. Activity then plunges for the mid-winter holidays. Because of this dynamic, September is usually the single month with the greatest number of new listings coming on the market, providing buyers with the widest choice of homes until spring rolls around again. The luxury home market is even more fiercely seasonal than the general market, which will be discussed later in this report.

The September surge in listings (first chart) leads to an
October surge of listings going into contract (second chart).

Housing Affordability

The California Association of Realtors just released its Q2 report on housing affordability, which we have illustrated in the 2 charts below. The numbers tie into the county median home prices delineated in the chart near the top of this report.

The Luxury Home Market

Bay Area Sales by County

With the continued growth of high-tech – exemplified by rapidly expanding companies such as Apple, Google and Facebook – Santa Clara and San Mateo now dominate Bay Area luxury home sales. Santa Clara has the biggest population in the Bay Area and the 2 counties combined have 3 times the population of the city of San Francisco. San Francisco is the only county that has a substantial luxury condo market, which adds a different dynamic to the mix.

Luxury Market Seasonality

As mentioned earlier, the luxury segment is fiercely seasonal in its supply and demand ups and downs. This next chart measures the number of new listings coming on market by month. It is not unusual for luxury house sales to peak in October, fueled by the rush of new inventory in September. On the other hand, luxury condo sales typically peak in May or June, feeding off the spring rush of new listings. The high-end market generally crashes in activity from before Thanksgiving through January, so the short autumn period is considered the last major window for sales until early next spring.

The Ultra-Luxury Home Market in San Francisco

The highest end of the high-end market consists of house sales of $5m+, and condo and co-op sales of $3m+. These sales constitute about 2.5% of SF home sales. There has been a big surge in luxury and ultra-luxury condo construction in recent years, providing the basis for increasing sales, while ultra-luxury house sales have mostly plateaued in recent years (very little new construction). Many new-project condo sales are not reported to MLS, upon which this next chart is based.

Luxury Condo Sales in the Greater South Beach District

Generally speaking, the SF luxury home market cooled significantly in mid-2015 due to a number of economic events (Chinese stock market crash, oil price crash, Brexit, big drop in IPO activity and high-tech hiring, presidential election fears), before picking up again in 2017. The luxury condo market in the greater South Beach district, running south from the Financial District and Market Street, was hammered by these events plus a number of other factors, which are delineated on the below chart. After peaking in 2015, sales volume (as reported to MLS) suddenly dropped almost 50%: Agents sometimes reported no one showing up for open houses.

Then in 2017, a recovery began that has now brought sales back up to a dramatic new peak. (Sales not reported to MLS would further increase recent sales volumes.) One of the big dynamics in this district is the competition between newly built, luxury condo listings and resale listings. Whether new or resale, almost all of these properties are in gorgeous, high-service, high-rise buildings, often with staggering views.

3 Classic Measures of Market Heat
Longer-Term Trends

Average Days on Market

As the market get hotter, listings sell faster.

Percentage of Listings Selling over List Price

The entire market has been very strong – these percentages are staggeringly high – but the house market is hotter than that for condos and TICs due to supply issues. The very small co-op market in SF is dominated by very expensive listings, and the luxury market is almost always softer than more affordable segments: The pool of buyers for the highest priced homes is clearly much, much smaller. And, frankly, luxury home listings are more prone to overpricing, which drastically affects response.

Months Supply of Inventory (MSI)

The stronger the buyer demand as compared to the supply of listings available to purchase, the lower the MSI. Generally speaking, MSI figures around the Bay Area have been flirting with historic lows in 2018.

Mortgage Interest Rates
Short-Term and Long-Term Trends

Two of the factors that have worried market analysts have been the big changes in federal tax law limiting the deductibility of state and local taxes, and interest rate expenses – changes that affect more affluent, higher home cost areas like ours most dramatically – and increasing interest rates. So far in 2018, buyers appear to have shrugged off any such concerns, and dollar-appreciation rates have actually accelerated since the beginning of the year.

Interest rates play a big role in housing affordability, and their plunge after the 2008 crash played a vital part in the market recovery of the past 6 years. It has typically been very difficult to predict interest rate changes with any accuracy, though most economists believe they are headed higher. The questions being: If so, how high? And how will buyers react?

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

Seasonality: How Market Dynamics Change by Season

Seasonality typically affects inventory levels, buyer demand and median home prices, often in very significant ways – as is illustrated in the following charts. However, it is not the only factor affecting market conditions and trends – general economic conditions and financial market movements, new construction projects coming on market, significant changes in interest rates, local stock market IPOs, natural and political events, and other factors can and do impact the market as well, sometimes quite suddenly.

It is also worth noting that new listings and new sales occur every month of the year – and sometimes, depending on prevailing market conditions and the specific property, buying or selling during the slower periods of the year can be the smart strategy. For buyers in particular, though the supply of active listings is somewhat lower during mid-late summer and mid-winter market slowdowns, and the number of new listings dwindles, the competition for homes is much lower as well. There are many more price reductions and increased seller willingness to negotiate list prices. The result is that buyers can sometimes make the best deals during these periods: Many of the charts below illustrate this opportunity.

Because of the significant summer and winter slowdowns, it is difficult to come to definitive conclusions about the direction of the market during July/August, and December/January. One really has to wait for the autumn market to begin in mid-September with the typical surge of new listings, or the spring market to begin in late February/ early March to get a sense of where the market may be heading next.

The devil’s always in the details, and the details of the market change constantly. Still, there is a typical and dramatic ebb and flow to the level of activity in the market that correlate with seasonality, and that is what this report explores from a variety of angles.

All our Bay Area real estate market analyses can be found here: Paragon Reports

Fluctuations in median sales prices are not unusual and these fluctuations can occur for other reasons besides changes in value, such as seasonality; inventory available to purchase; availability of financing; changes in buyer profile; and changes in the distressed and luxury segments. How these statistics apply to any particular property is unknown without a specific comparative market analysis. All data from sources deemed reliable, but may contain errors and is subject to revision.

© 2018 Paragon Real Estate Group

SF Multi-Unit Residential Income Market

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

This report generally separates out the 2-4 unit and the 5+ unit apartment building markets, since they typically have different dynamics and values. All the statistics below are broad generalities covering a wide variety of buildings of very different location, size, quality, condition, tenant profile, income and income potential. Some of the charts pertain to multiple counties, while later in the report, we drill down on supply and demand statistics specific to San Francisco. Note that some of the analyses track the last 12 months of sales, while others have a final data point reflecting only 2018 YTD sales.

As a political update, Proposition F passed in San Francisco, providing city tenants facing eviction proceedings – for any reason – the right to taxpayer-funded legal representation.

According to an analysis by Socketsite, the SF Accessory Dwelling Unit (ADU) program has so far resulted in 691 permit applications to add 1,244 such units to existing buildings. However, only 179 permits for 306 ADUs have so far been issued, and only 28 ADUs have been completed. 90 permit applications for 151 ADUs were filed in Q1 2018. There has been talk of the Planning Department simplifying the process and easing the requirements for the construction of ADUs, since current regulations have clearly been counter-productive to the goals of the program.

Bay Area Residential Rents

San Francisco Commercial Rents
Not so long ago, there were worries that a glut in new office buildings would hit market putting downward pressure on office rents, but every new building has had its space snapped up by major high-tech companies. This is pertinent to the apartment rental business since all those office buildings being leased are presumably going to be filled with additional, well-paid employees, maintaining pressure on apartment rents. This will help balance new apartment buildings coming on market as will be discussed later in this report.

Additional Chart: Median List Rent per Square Foot

Sales, Values & Trends by County & SF District

5+ Unit Buildings

2-4 Unit Buildings

San Francisco Market Overview Trends

Sales, Values & Statistics by Submarket
from our Q1 2018 report

Building Cranes Everywhere

Approximately 68,000 housing units are now in the SF new construction pipeline. Consistent with the trends in recent years, the percentage of rental units under construction is higher than for those units intended as condo sales.

Just because a project is in the pipeline does not guarantee it will be built as planned. Plans are constantly being added, changed and abandoned. New housing construction is extremely sensitive to changes in economic conditions.


Q2 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. Furthermore, the units are typically unlike those in suburban garden-apartment complexes, and 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

According to Broker Metrics, which crunches MLS sales data, of the largest brokerages in San Francisco for multi-unit residential property sales, Paragon ranks first for highest sales volume (in both 2+ and 5+ unit building sales). Paragon represents both many more buyers and many more sellers in successfully completed transactions. We also do significant amounts of business in surrounding Bay Area counties.


Link to our latest report on the SF residential homes market
All Paragon market reports can be found here


It is impossible to know how median and average value statistics apply to any particular apartment building without a specific, tailored, comparative market analysis, which can be provided upon request.

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. 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. All numbers to be considered approximate.

© 2018 Paragon Commercial Brokerage

What Costs How Much Where in San Francisco

Median sales price is that price at which half the sales occurred for less and half for more. Average dollar per square foot reflects the livable interior space of a home and does not include garages, storage, rooms built without permit, decks or outdoor space – not all sales report square footage, and interior square footage can be measured in different ways. Both of these statistics are generalities that disguise a huge variety of values in the underlying individual sales.

All our Bay Area real estate market analyses can be found here: Paragon Reports

House, Condo & TIC Sales Volumes by District

SF Neighborhood Home Price Tables, July 2018 Update
Median & Average Values by Property Type & Bedroom Count

Overviews on Home Price Appreciation

More appreciation analyses are here: SF neighborhood price appreciation charts

Home Sales & Prices within SF Districts/Neighborhoods

These charts below give much more detail than a single median sales price for, say, a 3-bedroom house in the Sunset District. If you already know the neighborhoods or areas of San Francisco you wish to concentrate on in your home search, these breakdowns will give you a better idea of what you will be able to find at different price points within each one. The following are generally by Realtor district. Sometimes, there is a wide variation of prices within a single district.

The first 4 charts are city overviews. Then district house and condo sales breakdowns follow.
If buying or thinking about buying, these reports have even more information and illustrate other angles on San Francisco home values and market conditions:

All Paragon Market Analyses
San Francisco Market Overview Analytics
Our Latest San Francisco Market Conditions Report
Tips for San Francisco Homebuyers

As always, the quality of the specific location and the range of amenities of the property; its curb appeal, condition, size and graciousness; and the existence and quality of parking, views and outside space can all significantly impact unit values.

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and how they apply to any specific property is unknown without a tailored comparative market analysis. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier. Median sales prices often change with even the smallest change in the period of time or parameters of the analysis. All numbers should be considered approximate.

© 2018 Paragon Real Estate Group

2018 YTD: A Wild Ride for San Francisco Real Estate

By any measure, the heat of the San Francisco market in the first half of 2018 has been among the most blistering ever. Probably only 3 or 4 other periods over the past 50 years have seen a comparable intensity of buyer demand vis a vis the supply of listing inventory available to purchase. This despite both significant increases in interest rates and changes in federal tax law severely limiting the deductibility of mortgage interest and property tax costs. As mentioned before, the market is particularly ferocious in the lower and middle-price segments of house sales.

Annual Dollar Value Appreciation

Appreciation is typically viewed through the lens of percentage changes, but looking at the actual increase in dollars paid for a median priced home is perhaps more visceral. These two charts below measure dollar increases in annual median sales prices for houses and then condos. The last columns in each chart measure 2018 YTD median sales price increases against the 2017 median sales price. (The links illustrate the traditional percentage changes.)

Comparing the first half of 2018 to 2017, the median house sales price in San Francisco increased by an astounding $205,000 (per sales reported by 7/3/18). For condos, the increase was also very substantial, at about $71,000.

Link to PERCENTAGE rate appreciation chart: SF houses

Link to PERCENTAGE rate appreciation chart: SF condos

It is not a given that the second half of the year will see home price appreciation at similar rates: Prices could increase further, or they might plateau or even tick down instead. (As can be seen above, home prices can go down as well as up, though longer term trends have always been positive.) For the last 7 years, spring has typically been the most feverish selling season of the year and has often provided most of the appreciation occurring in the full year.

Median sales prices are often affected by other factors besides changes in fair
market value, such as changes in inventory, new home sales or luxury home sales.

San Francisco Home Price Map

We just updated our interactive map of median house and condo sales prices for the 70-odd San Francisco neighborhoods, reflecting the last 12 months sales reported to MLS, which can be accessed by clicking on the map above, or through this link: What Costs How Much Where in San Francisco.

Market Dynamics Statistics

The decline in new listings, especially of houses, has been
a critical factor in the upward pressure on prices.

As houses have become the scarce resource in the SF market,
overbidding percentages have gone into the stratosphere (though
strategic underpricing has also played a role).

New lows in average days-on-market since the 2012 recovery began:
Listings have been snapped up faster than at any time in the past 7 years.

Market activity typically starts slowing significantly in July
before spiking up again in the short autumn selling season.

San Francisco Luxury Home Sales
as reported to MLS

The second quarter of 2018 saw the highest quarterly number of SF homes selling for $2 million and above: When late-reported sales are entered into MLS, we expect the total to be over 320 for the 3-month period, far exceeding the previous high of 267 sales in Q2 2017. However, looking at higher-priced sales of $3m+, Q2 2018 is just a handful of transactions ahead of the Q2 2015 total of 97.

The luxury home market is even more intensely seasonal
in its dynamics than the general market.

Luxury condo sales in San Francisco hit a new high in May 2018.
(Sales reported to MLS: new project sales would increase these numbers.)

For the last few years, luxury house sales have more often peaked in October.

Neighborhood Home Prices & Trends

Below are a few of the many new charts and tables from our updated report on neighborhood sales and values (What Costs How Much Where in San Francisco).

Home Price Tables by Bedroom Count

Where Best to Look in Your Price Range

District Overview Appreciation Trends

Median sales price appreciation in the four biggest districts for house sales by quantity of sales. (Note: districts contain a multitude of neighborhoods.)

Median price appreciation for 2-bedroom condos and co-ops
in the 5 biggest condo-sales districts by number of sales.

If you would like to see home prices or appreciation trends for a city district
or neighborhood not included above, please let us know. We cover them all.

The San Francisco Building Boom

Approximately 68,000 housing units are now in the SF new construction pipeline. Virtually all of them are apartments or condos: New house construction is minimal in the city, and has been so for over 50 years. Condos, new and resale, are now the dominant property type in market sales volume.

Just because a project is in the pipeline does not guarantee it will be built as planned. Plans are constantly being added, changed and abandoned. New housing construction is extremely sensitive to changes in economic conditions.

All our Bay Area real estate analyses can be found here: Paragon Market Reports

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis. In real estate, the devil is always in the details.

Median sales prices may change as late-reported sales are entered into MLS. Typically, such changes are not material to the overall trends illustrated.

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.

© 2018 Paragon Real Estate Group

Bay Area Market Survey: From Billionaires in Mansions to Flippers & Fixer-Uppers

The county and city appreciation percentages in the chart above were calculated by averaging changes in both median sales prices and average dollar per square foot values. We also incorporated S&P Case-Shiller SF metro area calculations based upon its algorithm breaking the market into thirds by price segment. Each city and county includes within itself a wide variety of individual real estate markets of different price segments and varying dynamics, so these percentages are broad generalities. It is impossible to know how they apply to any particular home without a specific comparative market analysis.

IMPORTANT NOTE: As with stock market (or bitcoin) performance, comparative appreciation rates in housing markets vary wildly depending on the exact start and end dates of the analysis.

Bay Area Home Value Appreciation Rates
since 2011 (the post-crash bottom of the market)

Bay Area Median Home Price Trends
since 1990

Major Factors in Bay Area Appreciation

The appreciation rate and market dynamics of each individual Bay Area market since 2011 has each been affected by a mix of different factors – to greater or lesser degrees:

1) Being at the center of the high-tech boom (San Francisco, San Mateo, Santa Clara); 2) proximity to the central counties, but with significantly lower housing costs (Alameda County and especially Oakland are prime examples): 3) being affected to an outsized degree by subprime financing and the 2008-2011 distressed-property price crash (Oakland and many outlying, less expensive areas); 4) relative affordability: in recent years, as home prices soared, the highest pressure of buyer demand moved to less costly markets within and between counties; 5) substantially increased supply due to new construction (SF condo market); 6) increases in the average size of homes sold (+13% in SF); and 6) the general national economic recovery: U.S. home prices have appreciated by about 49% since hitting bottom in 2011.

This chart illustrates the dynamics of the enormous appreciation rate in Oakland since 2011, following its drastic crash in prices during the market recession: Chart: Oakland median price changes. And this chart based on Case-Shiller data illuminates the vast differences in the magnitude of bubbles, crashes and recoveries of different home price tiers: Chart: Appreciation Trends by Price Segment.

Generally speaking, the most affluent neighborhoods, with the most expensive homes, have appreciated less on a percentage basis (but more on a dollar-increase basis) than more affordable neighborhoods – especially over the past 2-3 years. This dynamic also occurred in the latter period of the last housing boom.

There were sometimes specific local factors, such as the terrible fires in Sonoma, or the opening of the new Apple spaceship headquarters, which played roles in boosting home prices in their locales.

Bay Area Average Price per Square Foot Values

San Francisco County Median Price Trends
since 1993

Within SF, appreciation rates have diverged between houses
and condos due to classic supply and demand factors.

Many more analyses specific to San Francisco County and its neighborhood markets can be found here: San Francisco Market Report

Bay Area Median Condo Prices by County
Year-over-year changes

Condos are the distinctly more affordable home purchase option, though that is less true in San Francisco than in other counties. Indeed, overall in the city, condos sell at higher price per square foot values than houses, but, of course, average condo size is much less.

The high-tech boom has led to a considerable divergence between Bay Area and national home price appreciation rates, as illustrated in this graph based on Case-Shiller data: Long-Term Home Price Appreciation Trends

Fixer-Uppers: Median Sales Prices

Bay Area Luxury Home Markets

There are very expensive neighborhoods and enclaves throughout the Bay Area, but the fabulous creation new wealth has supercharged Silicon Valley high-end real estate sales above all others.

How much luxury home one gets for the money varies considerably between counties. On a dollar per square foot basis, the highest values are found in San Francisco luxury condos, often high-rise units with utterly spectacular views.

Bay Area Real Estate Market Dynamics

Sales by Price Segment

These next 2 charts break out house and condo sales in the 9-county Bay Area by price segment. (We roughly estimate another 10 to 12% of such home sales were not reported to MLS, and not included below.)

Respective Market Sizes

By unit sales volume, the Bay Area is utterly dominated
by Santa Clara, Alameda & Contra Costa Counties.

San Francisco & San Mateo close the gap in dollar
volume sales due to their high home prices.

The above chart tracks dollar volume sales for houses, duets, condos, co-ops, TICs and 2-4 unit residential buildings. If the sales of larger multi-unit residential buildings and commercial buildings were included, sales volumes would soar for some counties. For example, in San Francisco, 74% of all transfer taxes collected in 2017 related to property sales of $10m+, the vast majority of which were larger apartment buildings and commercial properties.

Home and Lot Sizes

As the economy recovered from the recession, people began to buy larger houses, which is one factor in increasing median home sales prices. The average size of houses sold in San Francisco increased 13% over the period, but is still far below those in Marin, and in Diablo Valley & Lamorinda in Central Contra Costa County.

Marin & Diablo Valley also have the largest median lot sizes.

Homeownership & Tenant-Occupancy Percentages

Of the 9 Bay Area counties, only San Francisco has a higher percentage of renters than of homeowners (though certain cities of other counties do as well).

On the issue of rent and eviction controls, people have a tendency to vote their own financial interests (and not according to their opinions on macro-economic housing-supply theory): Tenants for controls, and landlords and homeowners (potential landlords) generally against them. This is why strong rent control measures are typically found only in CA cities with majority tenant populations, such as SF, Oakland, Berkeley and Santa Monica. Upwardly spiraling rents, as illustrated in the below chart, has made this one of the most intense political issues of the day, to be voted on at the ballot in November.

Bay Area Rent Trends

The Bay Area has the highest rents of any metro area in the nation.

Supply, Demand & Market Seasonality

Most Bay Area markets will now start to transition from the more heated spring sales season to the less active summer season. Part of this dynamic is a marked increase in price reductions. Seasonal trends do vary by county: Sonoma, for example, has a strong second-home market which can peak in mid-summer. San Francisco and Marin typically see dramatic spikes in sales during the short autumn selling season. All markets head into big slowdowns for the mid-winter holidays, before waking up and beginning the cycle again in the new year.

Price Reductions

As the spring market ends, the major period
for listings reducing their asking prices begins.

Bay Area Population & Housing Statistics

Our report on local demographics is here: San Francisco & Bay Area Demographics. We guarantee you will learn surprising and interesting things you never knew before.

Bay Area Housing Statistics

In recent years, some counties have embraced growth in housing supply, and others have resisted it. For better or worse, no county has resisted growth more than Marin. Any way you slice it, housing supply has not come close to keeping pace with the surge in population, a major factor in our real estate markets.

According to a recent report by Turner & Townsend, San Francisco has the second highest construction costs in the world, behind only New York, and these costs continue to accelerate due to a number of factors: land and labor costs; the long planning, approval & permitting process; political opposition to growth; and affordable housing requirements.

Income, Poverty & Housing Affordability

According to the above calculations by the CA Association of Realtors, Bay Area median household income has increased by 23% since 2015, as compared to a 7% national increase (as calculated by Seeking Alpha). Among other factors, it has been reported that people moving into the Bay Area earn considerably more than those moving out.

The Bay Area high-tech boom has been one of the greatest new-wealth-creation machines in history, but many residents have not shared in its benefits, or, indeed, been negatively affected by its impact on housing costs. The Bay Area ranks third for its number of billionaires (after NYC and Hong Kong, according to Wealth-X), but, on the other hand, over a million local residents live in poverty (according to the Public Policy Institute of California). We have one of the great luxury home markets in the country, and one of the worst problems with homelessness.

Q1 2018 Housing Affordability Statistics
per the California Association of Realtors (CAR)

According to CAR, despite very significant increases in median home prices and interest rates, affordability rates ticked up a little year-over-year in most Bay Area counties due to increases in household incomes. This surprises us, but we have not been able to review all the underlying data employed in the CAR Index. CAR has not yet been able to incorporate the recent federal tax law changes into their calculations, which would presumably lower affordability rates due to new limits on the deductibility of state and local taxes (such as property taxes) and mortgage interest costs. Depending on specific financial circumstances, our, admittedly unqualified, back-of-the-envelope estimate is that this will probably mean the loss of tens of thousands of dollars in federal income tax deductions for someone, say, owning a San Francisco house at the current median sales price. (Get more qualified counsel from your accountant.)

According to National Association of Realtors calculations, the San Jose and San Francisco metro areas are the least affordable in the country, just a bit below Honolulu.

Mortgage Interest Rate Trends

Interest rates play a large role in ongoing housing costs (for those who do not pay all cash). They have risen appreciably in 2018, but so far that only seems to be motivating buyers to act more quickly before rates go higher. Still, at some point, if rates continue to rise, presumably there would be some negative impact on the market. Though considerably above the historic lows of recent years, rates are still very low by long-term standards.

Bay Area Employment Trends

One of the foundation stones of the current Bay Area economy and housing market has been the spectacular increase in employment over the last 7 years, often in extremely compensated jobs: It recently came out that the median salary at Facebook was $240,000. (On the other hand, Mark Zuckerberg made a salary of just one dollar in 2017: Hopefully, he has other sources of income.)

As with all economic trends, employment numbers can also decline suddenly and precipitately, as occurred after the dotcom bubble burst. Note: We are not making comparisons between the two high-tech booms.

Additional reading for those interested:

Report: Positive & Negative Factors in Bay Area Markets
Will the Last Person Leaving Please Turn Out the Lights
30+ Years of Bay Area Real Estate Cycles

All our reports and articles can be found here: Market Analysis & Trends

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 the Bay Area, each with its own unique dynamics. Median prices can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how median prices or general appreciation rates apply to any particular home without a specific comparative market analysis. All numbers in this report are to be considered approximate.

© 2018 Paragon Real Estate Group

Affordability & the Cost of Housing in the SF Bay Area

The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 1st quarter of 2018, which measures the percentage of households that can afford to buy the median priced single family dwelling (house).

In this analysis, affordability is affected by 3 major factors: county median house price, mortgage interest rates, and the distribution of household incomes within the county. (Housing Affordability Index Methodology). The HAI uses house prices exclusively and if condos were included in the calculation, median home prices would decline, affordability would increase and income requirements and PITI costs would be reduced as well. (SF now has more condo sales than house sales, but that is not the case in other Bay Area counties.)

If the HAI Index incorporates changes to the federal tax code (effective 1/1/18) limiting the deductibility of interest expenses and property taxes, it will presumably have a negative effect on affordability percentages in 2018. However, as of Q1 2018, the CAR Index has not yet been able to adjust their calculations for these changes.

By definition, half the homes sold in any given county were at prices below the median sales price, i.e. there were numerous homes that were more affordable than the median prices used in this analysis. However, any way one slices it, the Bay Area has one of the most expensive – if not the most expensive – and least affordable housing markets in the country. That impacts our society and economy in a number of important ways.

Since the real significance of many of these charts is in the longer term trends, we’ve only updated some of the charts below in this report with Q1 2018 data: Q1 median home prices, income required to purchase a median priced house, PITI costs, and county affordability percentages.

Link to our Survey of Bay Area County Markets, Trends & Demographics
Positive & Negative Factors in SF Bay Area Real Estate
Link to our Main Reports Page

Long-term Bay Area Housing Affordability Trends

Affordability Percentage by Bay Area County

Note that extremely low affordability readings converged across Bay Area counties at the top of the bubble in 2006-2007. So far, there has not been a similar convergence in our current market, though affordability is generally dropping as prices increase.

Having dropped approximately 40% from 2007 to mid-2016, extremely low interest rates have subsidized increasing home prices to a large degree in recent years – but they’ve begun to rise significantly in 2018.

San Francisco is still above its all-time affordability low of 8%, last reached in Q3 2007 (even though its median house price has increased more than 50% during that period). Other Bay Area counties (except for Silicon Valley) have appreciably higher affordability percentages, for the time being. Generally speaking, as one moves farther away from the heart of the high-tech boom, San Francisco and Silicon Valley, affordability increases.

Monthly Ownership Cost at Median Sales Price

Minimum Qualifying Income to Buy Median Priced House
Assumes 20% down payment and including principal, interest,
property tax and insurance costs.

Bay Area Median House Prices

San Francisco-Only Median House Price Appreciation
by Quarter since 2012

Before the high-tech boom, Marin, a famously affluent county for long time, had the highest median house price. But the high-tech boom accelerated median home prices in San Francisco and San Mateo faster and higher.

Additional chart: Median condo sales prices by county

San Francisco has a much larger and more expensive condo market than other local counties, and is the only county with a very substantial luxury condo market – one that is growing significantly with recent new-condo project construction.

U.S. Metro Area Housing Affordability
by the National Association of Realtors

This national affordability chart above employs a different methodology than the CA county charts above: The graphed chart values (percentages) have totally different meanings. The two metro areas at the bottom of the rankings make up 7 counties around the Bay Area.

Mortgage Interest Rates since 1981

Short-Term Changes in Mortgage Interest Rates

Interest rates play an enormous role in affordability via ongoing monthly housing costs, and interest rates, after their recent post-election jump are about 35% lower than in 2007. To a large degree this has subsidized the increase in home prices for many home buyers. It is famously difficult to predict interest rate movements, though there is general agreement. Any substantial increase in interest rates would severely negatively impact already low housing affordability rates.

Income, Affluence & Poverty

Santa Clara, San Mateo and Marin Counties have the highest median household (HH) income in the Bay Area. Though the median HH income figures of these 3 counties are almost double the national figure, their median house prices are 4 to 5 times higher, an indication that income dollars can go a lot farther in other parts of the country than they do here. Indeed an income that in other places puts you close to the top of the local register of affluence, living grandly in a 6-bedroom mansion, in the Bay Area might qualify you as perhaps slightly-upper-middle class, living in an attractive but unostentatious, moderate-sized home that costs twice what the mansion did (though, this being the Bay Area, you are probably still driving a very expensive car).

On the other hand, you live in one of the most beautiful, highly educated, culturally rich, economically dynamic, and open-minded metropolitan areas in the world.

Behind median HH incomes, each county also has enclaves of both extreme wealth and poverty within its borders.

Very generally speaking, in the Bay Area counties, renters typically have a median household income about half that of homeowners. In San Francisco, where the majority of residents are in tenant households, that significantly reduces the overall median HH income figure. The picture of housing affordability for renters in the city is ameliorated or complicated by its strong rent control laws (which, however, don’t impact extremely high market rents for someone newly renting an apartment) .

Additional chart: Homeownership Rates by County

Additional chart: Population Demographics – Children & Residents Living Alone

San Francisco has the lowest percentage of residents under 18 of any major city in the U.S. (It is famously said that there are more dogs in the city than there are children.) It also has an extremely high percentage of residents who live in single-person households – 39% – which is a further factor depressing median household income below markets with similar housing costs.

The Bay Area has approximately 2.8 million households. Of those, approximately 124,000 households have incomes of $500,000 and above, which would generally be considered to place them in the top 1% in the country by annual income. At 7.5%, Marin has the highest percentage of top 1% households, followed by San Mateo at 6.2%. With approximately 38,000 top 1% households, Santa Clara, the Bay Area’s most populous county, has by far the largest number of these very affluent households, while San Francisco has about 22,000.

It should be noted that besides high incomes per se, another factor in the Bay Area housing boom of recent years has been the stupendous generation of trillions of dollars in brand new wealth from soaring high-tech stock market values, stock options and IPOs. Thousands of sudden new millionaires, as well as many more who didn’t quite hit that level, supercharged real estate markets (especially those in the heart of the high-tech boom) as these newly affluent residents looked to buy their first homes, perhaps with all cash, or upgrade from existing ones. That is something not seen in most other areas of the country, certainly not to the degree experienced locally, and is a dynamic outside typical affordability calculations. This increase in new wealth has slowed or even declined in the past 12 months as the high-tech boom has cooled (temporarily or not, as time will tell). Still, there are dozens of local private companies, usually start-ups, some of them very large – such as Uber, Airbnb and Palantir – which are considered to be in the possible-IPO pipeline. If the IPO climate improves and successful IPOs follow, a new surge of newly affluent home buyers may follow.

Additional chart: Bay Area Populations by County

A look at two very different income segments in the Bay Area, those households making less than $35,000 and those making more than $200,000. The $35,000 threshold is not an ironclad definition of poverty, especially since housing costs (by area, and whether market rate, subsidized or rent-controlled), household sizes and personal circumstances vary widely, though it is clearly difficult for most area families trying to live on that income. At over 25%, San Francisco has the highest percentage of households with incomes under $35,000 and, at 22%, Marin has the highest percentage making $200,000 and above.

Amid all the staggering affluence in the Bay Area, and huge amounts of new wealth generated by our recent high-tech boom, very significant percentages of the population still live in poverty, especially if our extremely high housing costs are factored into the calculation. (The above chart calculates poverty rates by different criteria, the higher one factoring in local costs of living.) The economic boom has helped them if it resulted in new, better paying jobs, unfortunately not as common a phenomenon as one would wish for the least affluent. It hurt them, sometimes harshly, if their housing costs escalated with the increase in market rates.

Longer-Term Trends in Prices and Rents
The same economic and demographic forces have been putting
pressure on both home prices and apartment rents.
 

Bay Area Median House Prices since 1990

If one looks at charts graphing affordability percentages, home prices, market rents, hiring/employment trends and to some degree even stock market trends, one sees how often major economic indicators move up or down in parallel.

Monthly Rental Housing Costs

The recent economic boom has added approximately 600,000 new jobs in the Bay Area over the past 6 years, with about 100,000 in San Francisco alone – with a corresponding surge in county populations. Most new arrivals look to rent before considering the possibility of buying. The affordability challenges for renters (unless ameliorated by rent control or subsidized rates) has probably been even greater than that for buyers, since renters don’t benefit from any significant tax benefits, from the extremely low, long-term interest rates, or by home-price appreciation trends increasing the value of their homes (and their net worth). In fact, housing-price appreciation usually only increases rents without any corresponding financial advantage to the tenant. Rents in the city have been plateauing in recent quarters and may even be beginning to decline as the hiring frenzy has slowed and an influx of new apartment buildings have come onto the market – but they are still the highest in the country.

Bay Area Rent Report

Affordable Housing Stock & Construction in San Francisco

Additional Chart: Affordable Housing Construction Trends in San Francisco

There may be no bigger political and social issue in San Francisco right now than the supply (or lack) of affordable housing: Battles are being fought, continuously and furiously, in the Board of Supervisors, at the ballot box and the Planning Department by a wide variety of highly-committed interests, from tenants’ rights and neighborhood groups to anti-growth factions and developers (to name a few). It is an extremely complicated and difficult-to-resolve issue, especially exacerbated by nimby-ism and the high cost of construction in the city. SPUR, a local non-profit dedicated to Bay Area civic planning policy, estimated in 2014 that the cost to build an 800 square foot, below-market-rate unit in a 100-unit project in San Francisco was $469,800 – and we have seen higher estimates as well.

This fascinating graphic above, based on SF Controller’s Office estimates from late 2013, breaks down SF housing supply by rental and ownership units, and further divides rental by those under rent control. All the units labeled supportive, deed restricted and public housing could be considered affordable housing to one degree or another, i.e. by their fundamental nature their residents are not paying and will never pay market-rate housing costs. (Units under rent control will typically go to market rate upon vacancy and re-rental, though rent increases will then be limited going forward.) Adjusted for recent construction, there are roughly 34,500 of these units out of the city total of about 382,500, or a little over 9% of housing stock. Section 8 subsidized housing would add another 9,000 units.

There are currently many thousands of affordable housing units, of all kinds, somewhere in the long-term SF Planning Department pipeline of new construction, though many of them are in giant projects like Treasure Island and Candlestick Park/Hunter’s Point, which may be decades in the building. But it is generally agreed that new supply will never come close to meeting the massive demand for affordable housing, further complicated by the question of what exactly affordable means in a city with a median home price 5 times the national median, typically well beyond the means of people such as teachers and members of the police force. One corollary of increasing affordable housing contribution requirements for developers and extremely high building costs is that developers are concentrating on building very expensive market-rate units – luxury and ultra-luxury condos and apartments – to make up the difference.

Other reports you might find interesting:

Survey of SF Bay Area Real Estate Markets

10 Factors behind the San Francisco Real Estate Market

30+ Years of San Francisco Bay Area Real Estate Cycles

San Francisco Neighborhood Affordability

All our analyses can be found here: Paragon Market Reports

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. All numbers should be considered general estimates and approximations.

© 2018 Paragon Real Estate Group
 

San Francisco Luxury House, Luxury Condo, Co-op and TIC Markets

As seen in the chart below, so far in 2018, SF luxury home sales have been very strong, higher than in any previous year since the recovery began in 2012. The recent stock market volatility notwithstanding, the economic confidence that has been sweeping the nation is also showing up in our luxury home markets. For example, as of February 16th, the sales of condos, co-ops and TICs at prices of $2m and above has jumped 55% in the city, year over year, and luxury houses by 19%. Note that year-to-date data is very preliminary and much more will be known once the spring selling season really gets started in earnest. Also, if the recent financial market volatility continues and becomes even more dramatic, that may cool high-end home markets (and IPO activity) as it has in the past.

Longer-term sales volume charts – which also show a substantial bounce in sales in calendar year 2017 – are a bit further down in this report in the “Overview: Listing & Sales Volume” sections.

However behind the positive sales statistics, inventory statistics provide a note of caution, especially for what we call the ultra-luxury home segments: houses selling for $5m+ and condos and co-ops selling for $3m+. In those segments, the supply of listings has been surging well beyond demand, and many of these listings are expiring without selling. As an example, ultra-luxury home sales make up about 2.5% of total sales, but as of February 23rd, they made up 12% of active SF home listings (no offer accepted). It appears some sellers are getting a bit over-exuberant regarding the value of their beautiful homes. This is illustrated in the 2 charts below.

Just because a luxury market segment is notated as being in buyer-advantage market territory does not mean that some listings do not sell very quickly for well over asking price, as some certainly do. Ultimately in real estate, it all depends on the specific property, and its appeal, preparation, marketing and pricing.

It can be challenging to measure appreciation in the most expensive price segments, because, firstly, there are not that many sales, and secondly, because of the huge range of sales prices with those segments ($3m to $30m for luxury houses in SF; $2m to $22m for condos and co-ops), but it may well be that their values have generally plateaued since 2015, or in some instances, ticked down a little. But it all depends on the property, and different neighborhoods are often experiencing very different market conditions in the city, some much stronger than others – especially in the luxury homes segments.

How the 2018 market plays out depends on a number of factors that are susceptible to change: financial markets, interest rates, the course of the high-tech boom, whether our big, local start-ups proceed with IPOs, political developments, and so on. . (Positive & Negative Factors in Bay Area Markets) For the time being, the San Francisco market appears to be off to a heated start characterized by robust demand. Here at Paragon, our 2018 SF sales volume in January and February was up 38% year over year, though admittedly we are outperforming the general market, which is up about 8%.

Most analyses below are based on 6-month or 12-month rolling figures as those typically provide a better illustration of the general direction of market trends (using larger data sets), as opposed to common monthly fluctuations (based on very small data sets). Each data point is these cases reflects the average or median statistic for the 6 or 12 month period.

Overview: Luxury Home Listing & Sales Volumes
All houses priced $3m+; All condos, co-ops, TICs priced $2m+

Active Listings on Market since 2005

Sales Volumes since 2005

Overview: Ultra-Luxury Listings & Sales Volumes
Houses priced $5m+; Condos, co-ops, TICs priced $3m+

Active Listings on Market since 2005

Sales Volumes since 2005

The charts above illustrate overall listing and sales volume trends for 1) in the top 2 charts, the entire luxury home market, and then, 2) in the bottom 2 charts, specifically for the more costly ultra-luxury segment. There are some significant differences between the luxury condo and house markets, but, generally speaking, luxury home sales soared since the recovery began in 2012, cooled a bit in late 2015 (financial market volatility, as well as jump in new-luxury-condo construction), and then bounced back in late 2016 and 2017. The inventory of active listings on the market has risen considerably in the past 2 years, which has appreciably altered supply and demand dynamics. As a point of comparison, in the more affordable home segments (especially for houses), supply has not risen, and indeed has declined in some areas, and inventory is still very inadequate when compared to the heated demand.

Further down in this report, we deconstruct the luxury markets further by property type, price segment (expensive vs. very expensive) and by neighborhood, and that is where some interesting and sometimes dramatically diverging trends come to light.

In this analysis, charts will sometimes use different price thresholds for the luxury designation, depending on when the chart was first created, or whether different property types are being mixed together. Right now, we consider that luxury condos, co-ops & TICs start at about $2m, and luxury houses at $3m – that is roughly the top 10% of their markets. What we call ultra-luxury adds another $1m to condo sales prices, and another $2m to houses, and constitutes about the top 2.5%.

San Francisco Luxury House Sales
by Era of Construction

The great majority of SF luxury houses sold in 2017 were built
prior to 1940. More than half were built before 1920.

Luxury Condo, Co-op & TIC Sales
by Era of Construction

The largest group of luxury sales of these property types
were condos built since 2000, many of which were newly built.

Other Paragon reports you might find interesting:

San Francisco Neighborhood Affordability
Positive & Negative Factors in Bay Area Markets
Survey of Bay Area Real Estate Markets
San Francisco & Bay Area Demographics
Paragon Main Real Estate Reports Page

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.

© 2018 Paragon Real Estate Group

SF Residential Newsletter: Hottest SF Neighborhood Markets

Before discussing neighborhood values, appreciation rates and market cycles, here are 3 overview charts on the entire city market.

Citywide Home Values & Trends

On a 3-month-rolling basis, median home sales prices in San Francisco yet again hit new highs in April 2018: The median house sales price jumped $55,000 over the March price to hit $1,665,000, and the median condo sales price jumped $50,000 in April to $1,225,000 (3-month rolling sales through 4/30/18, reported by May 2). Those reflect year-over-year increases of 23% and 8% respectively. Average dollar per square foot values also reached new peak values.

Highest Median House Price Appreciation Rates by Neighborhood:
Compound Annual Appreciation Percentages, 2011 – 2017

The neighborhoods and districts circled on the map below have seen compound annual appreciation rates of 12% or more over the past 6 years. As a point of comparison, the national rate over that period was about 7%, and the CPI inflation rate about 1.5%. As illustrated in the table below the map, the highest rate in San Francisco over the period was above 18%.

If the return on cash investment was calculated for purchasing with a 20% down payment (instead of paying all cash), and adjusting for closing costs (estimated at 2% on buy-side, 7% on sell side), the compound annual rate of return on the cash investment soars: A 10% annual rate of home price appreciation would then translate into an annual compound return on cash investment of just under 40%. The use of financing in home ownership is one of the reasons why it can often be such a good investment to develop household wealth over time.

Total 6-year appreciation rates can be calculated by dividing the 2017
median house sales price by the 2011 price.

Though median home price appreciation rates throughout the city have been incredibly high by any reasonable measure, some neighborhoods have outpaced the norm. The main reason is affordability: Less expensive homes have appreciated considerably faster than more expensive homes. Also, some of the most affordable districts were hammered by foreclosure sales after the 2008 crash, which brought their sales prices down to unnatural lows by 2011 – setting the stage for dramatic recoveries. Bayview, with the most affordable houses in SF and also worst hit by the 2008-2011 distressed property crisis, has had the highest compound annual appreciation rate since that time, a staggering 18.3%, or a 6-year total rate of 174%. Other affordable neighborhoods running across the southern border of the city – such as Excelsior, Visitacion Valley, Sunnyside, Ingleside and Oceanview – also saw extremely high annual rates of 12% to 14% for similar reasons.

The dynamic in the Inner Mission was somewhat different: Its 14.7% compound annual rate of appreciation – a total of 128% over the 6 years – was because it turned into the hottest, hippest district in the city, especially among younger high-tech workers. The gentrification which had been slowly occurring for 30 years suddenly went into overdrive to catapult prices higher.

Bernal Heights – with a 13.3% compound annual rate and 111% 6-year total – is right next to the Mission on one side and to Noe Valley on another. It was perfectly situated to take advantage of the classic overflow effect for people who wanted a similar neighborhood ambiance to Noe or Eureka Valley, but could no longer afford their much higher prices. Outer Richmond was also a standout: It has the lowest house prices in the northern third of the city. And the Sunset & Parkside district is filled with mid-price 2 and 3 bedroom houses, has a variety of attractive neighborhood commercial districts, ocean or parks on 3 sides, and easy access to highways south to the peninsula. All these factors have made it into a much sought-after location to purchase a home in recent years. The market there is insanely hot now.

The most expensive neighborhoods in the city have lower, but still very high rates of appreciation. And in dollar terms, their appreciation returns are by far the highest in the city.

CONDOS: Calculating appreciation rates for SF neighborhood condo prices is an iffier process, because so many large, new condo projects have come on market, significantly impacting inventory and sales prices, and making it much more difficult to perform apples to apples comparisons. Therefore, our calculations, above and below, are performed for the entire city instead of for separate districts. It is certainly true that, due to supply and demand issues, condos have typically appreciated at somewhat lesser rates than houses, which have become the scarce commodity in SF. There has been some variation in condo appreciation rates depending on location, supply and price segment.


Up, Down, Up: A Longer-Term Look
at SF Home Value Changes since 2000

Bubble, Crash & Recovery
by District & Price Segment

Home value appreciation in the charts below is broken down by 4 distinct time periods: 1) 2000 to peak of bubble (2006-2008, depending on price segment); 2) peak of bubble to bottom of market (typically 2011); 3) the 1st 4 years of the recovery, 2012 to 2015; and 4) 2015 to present.

House appreciation is broken down into 4 broad price segments as exemplified by the markets in 4 city regions: The least expensive segment is represented by house sales in the broad swathe of southern neighborhoods running from Bayview through Portola, Excelsior, Crocker Amazon and Outer Mission (Realtor district 10). The mid-price segment is illustrated by sales in the Sunset & Parkside district (Realtor district 2). The central Noe, Eureka & Cole Valleys district (district 5) is used to represent the expensive segment; and the very expensive house segment is illustrated by the northern, old-prestige neighborhoods running from Sea Cliff, Lake Street & Jordan Park through Pacific & Presidio Heights, Cow Hollow and Marina to Russian, Nob & Telegraph Hills (which are the very affluent parts of 3 different Realtor districts).

These areas were used because of their quantity of sales and the relative homogeneity of values within them. For condos, appreciation rates were calculated on the entire SF condo market. The calculations below were made by averaging both median sales price and average dollar per square foot appreciation rates. Present values are based on sales occurring in Q4 2017 and Q1 2018.

2000 to Peak of Bubble,
Crash to Bottom of Market

Less expensive homes saw by far the biggest bubbles (2000 to 2006-2008) and crashes (2008-2011), mostly due to the predatory lending/ subprime financing crisis. This was a phenomenon across Bay Area markets. (Note that different price segments peaked in different years from 2006 to mid-2008.)

Bottom of Market to 2015,
2015 to Present

The first 4 years of the recovery which began in 2012 saw high home-price appreciation rates across the city. In 2015, the market shifted – there was considerable financial market volatility in late 2015 and the first half of 2016, a precipitous drop in IPO activity, and the high-tech boom cooled temporarily – and appreciation rates diverged, with less expensive homes significantly outpacing more expensive neighborhoods. One factor was that buyers were desperately searching for homes they could still afford.

Overall Dollar & Percentage Appreciation
2000 to Present

By total percentage appreciation since 2000, Sunset/Parkside ranks first. By actual dollar appreciation, the most expensive home prices increased the most, typically by well into seven figures.

San Francisco Condo Appreciation
2000 to Present, All Districts

Generally speaking, the SF condo market has not seen appreciation rates as high as for houses. Mostly, this has to do with increasing supply due to the boom in new condo construction, but it was also affected by factors in 2015-2016 already described above.

Percentage of Sales over List Price
by Property Type

This chart illustrates the difference in demand by property type.
Houses have been the hottest segment in recent years.

San Francisco New-Housing Trends

New construction, projects authorized, and affordable housing figures
based on SF Planning Department data recently released for 2017

Additional reading for those interested: Paragon Main Reports Page

Please let us know if you have questions or we can be of assistance in any other way. Information on neighborhoods not included in this report is readily available.

It is impossible to know how median and average value statistics apply to any particular home without a specific, tailored, comparative market analysis. In real estate, the devil is always in the details.

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. Late-reported MLS activity may change certain statistics such as median sales prices, to some small degree.

© 2018 Paragon Real Estate Group