The San Francisco Home Market: Bounce Back or Double Dip?
We live in a constant storm of analysis and opinion as to what is happening and will happen in real estate. Due to national statistics in December (and other economic indicators), some have predicted a nasty “double dip” in the home market subsequent to the recovery which began last spring. But the market goes into hibernation in December: there are far fewer transactions, mostly by first-time buyers purchasing at lower price points, while families and upper-end buyers generally withdraw for the holidays. When the data is reduced and skewed, it’s less reliable. January isn’t much better because it takes a while for the market to wake up.
Therefore, the market data for February, as seen in the charts below, is of particular interest. While it’s unwise to make too much of one month’s data (a failing of many pundits), it is surprising how sharply February’s statistics indicate a strengthening market. That is not to say a double-dip isn’t possible — the state, national and world economies are still fragile — just that we are not yet seeing indications of one here in San Francisco. Those who have spent the last year waiting eagerly for further price declines have so far waited in vain. (For the record: according to the Case-Shiller index, home values in the 5-county SF Metro Area have increased 4 – 5% in 2009, but the city accounts for only a small percentage of those sales.) It will be interesting to see if the trends seen below continue, as spring gets under way — and what implications that might hold regarding price movements.
Data is from sources deemed reliable but may contain errors, and is not warranted. Sales not reported to MLS, such as many new-development condo sales, are not reflected in these statistics. Median price is that price at which half the sales are above and half are below.
Home Listings Accepting Offers
Considering February is a short month (with 2 national holidays), market demand was comparable to the highest levels we’ve seen in the past 18 months. February’s number was 50% higher than January, 80% higher than one year ago (during the market’s dark days), and 12% above February 2008.
Median List Price of Homes Accepting Offers
The most recent market data available is of listings accepting offers. (Sales prices are 30-60 days behind the market, as they reflect when the offer was accepted.) And the median list price of homes accepting offers is generally within a few percentage points of the final sales price. Assuming the steep December/ January drop was a seasonal anomaly, this chart shows little indication of either significantly increasing or decreasing prices. Indeed, the definitive trend is how stable the overall SF median price for homes under contract has been since spring 2009: $700,000 plus or minus about 3%.
Market Activity by Property Type
House and condo sales dominate the SF market, with TICs and 2-4 unit buildings far behind. The low number of closed sales in February reflects the reduced offer activity of the holiday season, and February’s accepted offers will close mostly in March and April. The average time it took for sold houses to accept an offer (59 days) was lower than that for condos (75 days), TICs (109 days) and 2-4 unit buildings (110 days), which reflects the heat of each market segment.
New Listings Coming on Market
New inventory has been increasing since early January, but as can be seen in the other charts, it is not keeping up with buyer demand. We may see a greater surge of new listings with the beginning of spring – certainly the hope of many buyers. This is a week by week chart of the past 6 months.
Homes for Sale (w/o Accepted Offers)
Despite the increase in new listings, the number of active homes for sale — house, condo, TIC — over the last 3 months has been lower than at any time in the past 2 years. This reflects the anecdotal word from the field: strong buyer demand; lots of buyers touring open houses; very limited supply of appealing, well-priced homes to buy; often leading to multiple offers on those that do appear on market.
Percentage of Listings with Accepted Offers
At over 22%, February had the highest percentage of San Francisco home listings with accepted offers of any month over the past 2 years, indicating a market heating up. When looking at homes between $500,000 and $700,000 — the price range with most sales in SF — the percentage increases to over 24%, the highest percentage for that price range in the past 2 years.
Average Days-on-Market for Homes Accepting Offers
The lower the days-on-market, the faster listings are accepting offers. February saw a big plunge in average days on market (to 47 days) for homes accepting offers. In fact, the change was so dramatic, it may be anomalous — or it may simply reflect pent-up demand, as buyers returning from the holidays jump upon an insufficient supply of inventory. It is the lowest average days-on-market number in the past 2 years.
MSI is defined as that number of months required to sell the existing inventory of available homes at the current rate of sale: the lower the MSI, the stronger the demand as compared to supply. At an MSI of 3.1 months, February had the lowest MSI figure for SF homes of the past 2 years. The MSI for SF homes between $500,000 and $700,000 is an even lower 2.7 months. Usually MSI figures this low would be considered a clear “Sellers’ market,” but with difficult financing conditions and uncertainties regarding the economy, the balance of power between qualified buyer and motivated seller is currently more complicated.
Inventory Absorption: SF Home Market
The longer gray lines delineate “residual inventory”, i.e. that number of listings actively for sale on the last day of the month which were listed prior to the first day of the month: simply put, listings which have not accepted offers within 1 month of going on market. January and February saw the lowest amount of residual inventory in the last 2 years. Also the ratio of properties which have accepted offers to residual inventory is at the highest level in 2 years. Two more statistics indicating a strengthening market.
Sold Listings vs. Expired Listings
The green bars indicate sold listings and the purple bars the expired/ withdrawn listings in any given month. (Again, the low number of sales in January and February reflect the low number of accepted offers during the holidays.) Even with the relatively strong demand in SF since last spring, for every 3 homes that sold, another 2 listings expired without selling. The current market is unlike our (very hot, perhaps irrational) market of 2 – 3 years ago, when it seemed that virtually everything sold quickly. Most Buyers now ignore listings they consider overpriced, and homes not priced within 5% – 8% of perceived fair market value usually don’t even receive offers.
Luxury Homes Accepting Offers
This 2-year chart delineates the number of San Francisco homes priced $1,500,000 and above which accepted offers in any given month. Luxury home sales rebounded in February 2010 from the doldrums of the holiday season, back up to the highest levels seen in the past year — but still substantially below the activity seen before the market meltdown in September 2008.
Luxury Homes: % of Listings with Accepted Offers
At 19%, February saw the highest percentage of high-end listings ($1.5m and above) with accepted offers since July 2008, an obvious indication of increasing demand amid relatively low supply. A year ago, the percentage was a very low 7% (following the crash in the luxury home market after September 2008), and 2 years ago, during the hot luxury market, the percentage reached a high 28%.
As March began, the average rate for 30-year fixed-rate loans once again fell below 5%, which is very low. Many analysts believe rates will increase after the Fed ends its bond buying program at the end of March, and though opinions vary, the consensus forecasts an approximate 1% increase by the end of 2010. 6% is still a low rate historically, but the increase would add significantly to the carrying cost of home ownership.