July 2017 - San Francisco Real Estate Mid-Year Review
San Francisco Real Estate Market - Mid-Year Report
Updated July 2017
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San Francisco Real Estate: The Paragon Mid-Year Report
Highest median home prices ever; a new peak in SF luxury home sales;
the huge, new-construction pipeline; SF neighborhood home prices and trends;
San Francisco & Bay Area home price maps
July 2017
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A Very Hot Spring
SF Median Sales Price Appreciation
by Quarter since 2012 
After hitting new monthly highs in May, San Francisco houses and condos hit new quarterly peaks in Q2 2017. However, median house price appreciation, $100,000 above its previous high, has been more dramatic over the past 2 years than median condo price appreciation, which has mostly plateaued due to the surge in new-project condos coming on market. As illustrated above, it is not unusual for median prices to peak for the year in Q2, and a significant part of this dynamic, besides the competitive heat of the market in springtime, is the large jump in high-end home sales seen at this time of year. More expensive home sales closed in Q2 than in any quarter in the past. Which leads to our next chart:
San Francisco Luxury Homes Sales
by Month since 2014 
Sales of luxury condos surged dramatically this spring to hit their highest number ever in June on a monthly basis, and in Q2 on a quarterly basis. Luxury house sales of $3m+ also barely exceeded the previous quarterly high in sales, but its component months were well below earlier monthly peaks. Note that condo figures do not include new luxury condo sales unreported to MLS.
Our complete report: The San Francisco Luxury Home Market
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Building Cranes Everywhere
Approximately 64,000 housing units, 31 million sq.ft. of commercial space
& 25 hotels with 4685 rooms are now in the SF new construction pipeline -
with 5700 units, 10 million sq.ft. and 5 hotels currently under construction. 
In the above chart on new housing construction, the main issue for the SF residential sales market is new condo construction and its effect on the supply and demand dynamic. Over 5000 new condos have been built in the past 4 to 5 years, with another 2000 expected to hit the market in the next 2 or 3. This surge of supply has been a substantial factor in the overall plateauing of condo median sales prices in the city since 2015, and some declines in those neighborhoods where new construction has been concentrated. However, it is true that new construction has been shifting much more toward building rental housing than condos intended for sale, which should help relieve pressure on condo prices and continue to exert downward pressure on rents. The rental scenario is discussed further at the end of this report.
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Home Price Maps
We have just updated our median home price maps for the entire Bay Area by city, for San Francisco by neighborhood, and then specifically for the Marin, Lamorinda & Diablo Valley, and Wine Country markets. To access them, click on the map image below and then roll your cursor over the maps on the webpage. 
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SF Neighborhood Home Prices & Trends
House & Condo Prices by Bedroom Count 
Our full collection of home price tables: Median Sales Prices by Bedroom Count
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Appreciation Trends since 2005
for Selected San Francisco Neighborhoods 
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Sales by Price Segment within Neighborhoods
Median sales prices typically disguise a wide range of prices in the underlying individual home sales, which is what these charts illustrate.
Dozens more neighborhood analyses can be found here: San Francisco Neighborhood Prices & Trends.
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Bay Area Rent Trends
This is from our mid-year report on the multi-unit residential market, which can be found in its entirety here: Bay Area Apartment Market Report 
San Francisco still has the highest rents in the nation (the light blue columns in the chart above), exceeding even Manhattan (in second place, delineated by the dark blue line), but they have been dropping since recent peaks in late 2015/early 2016. There are two main factors: 1) per Ted Egan, the chief economist of the City of San Francisco, high-tech hiring has been slowing since 2016, and 2) over 8000 new rental units have been built in the past 5 years, with at least 10,000 more expected to hit the market in the next 5. Generally speaking, rents around the Bay Area have either declined, in what had been the hottest markets, or seen their appreciation rates significantly slow, over the past year or so.
All our Bay Area real estate analyses can be found here: Paragon Market Reports
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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.
© 2017 Paragon Real Estate Group
Crazy Hot Spring Market - Again
As Buyers Compete for an Inadequate Supply of Home Listings,
San Francisco Median House Sales Price Soars to $1,500,000 in May
June 2017 Report
Home price appreciation, overbidding asking prices, supply and demand
dynamics, the SF luxury home market & new housing construction
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Three Views of SF Median Sales Price Appreciation
Monthly House & Condo Median Sales Prices since 2012 
We are not that enthusiastic about using monthly median prices, because San Francisco does not have that many sales in any given month (400-550), divided among 4 property types in 70-odd neighborhoods with different values. Monthly data can also be affected by short-term events, such as bad weather, a spike in interest rates, a new-condo project closing many sales, or a sudden political or economic event. All those factors mean that monthly prices can fluctuate dramatically without great meaningfulness as to changes in fair market value.
However, that being said, the spring market 2017 definitely became feverish and in May, the SF median house sales price jumped to $1,500,000, its highest point ever, about $100,000 (7%) above its previous monthly peak. The SF median condo sales price also hit a new peak at $1,200,000, $20,000 (1.7%) above its previous high. Note that it is not unusual for median sales price to spike in spring and then decline thereafter as the market starts to cool for summer (i.e. spring median prices do not immediately become the new normal). Other counties around the Bay Area also hit new peak median house sales prices in either April or May: $1.49m in San Mateo, $1.35m in Marin, $1.28m in Diablo Valley/Lamorinda, and $875,000 in Alameda.
Year-over-Year 3-Month Median Sales Prices
March-May, since 2005 
Comparing March through May sales year-over-year, houses and condos also hit new peaks: the SF median house price increased 4.6% from the same period in 2016, and the SF median condo price increased 4.5%.
Rolling 3-Month Median Sales Prices since 2005 
In both this chart and the one above it, one sees the plateauing of condo median prices in 2015-2016. The condo market cooled much more than the house market in 2016, mostly due to an influx of new construction condos coming on market just as high-tech hiring slowed.
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Comparing Us and Them
San Francisco & National Appreciation Trends since 1987
through March 2017
The numbers on the Case-Shiller chart below all relate to a home price of 100 in January 2000: 50 denotes a home price 50% below then; 230 signifies a price 130% above January 2000. 
This chart compares the S&P Case-Shiller Home Price Indices for the 5-county San Francisco Metro Area high-price-tier market (which reflects the city of San Francisco best) in the blue line and the United States market in the green line. It goes through March 2017, which is the last report Case-Shiller has released as of early June, so it will not reflect the appreciation of April and May.
The appreciation trend lines are really quite similar except for 3 periods: Right after the 1989 earthquake, the rise and crash of the dotcom bubble, and the recent high-tech boom in the Bay Area. Looking beyond the difference in appreciation rates since 2012, 70% vs. 40%, the difference in dollar appreciation in median house prices over the 5 years is enormous: over $500,000 for SF vs. $70,000 for the U.S.
Note on the chart that after a divergence, it is not unusual for the trend lines to converge once again.
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Market Heat by San Francisco District
Overbidding House List Prices
The house market is hotter than the condo market, and the more affordable house market (affordable by San Francisco standards) has turned into a feeding frenzy this spring. By the measure of overbidding, the Sunset, Parkside and Golden Gate Heights district remains the hottest the city, as it was when we last measured in October 2016. These are stupendous median percentages over house asking prices. In the condo, co-op and TIC market, overbidding is at lower percentages, generally running in the 5-11% range, but going as low as 0% in the South Beach/SoMa district with its big influx of new construction inventory.
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Percentage of Sales Selling for Over List Price
The percentage of house sales under $3m that sold during the past 3 months for OVER asking price was a whopping 81%. That is feverish. Other market segments were also strong, but not quite as hot as that for non-luxury houses.
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4 Measures of Supply & Demand Dynamics
January 2007 - May 2017
In each of the following charts, there are distinct changes reflecting 1) the market recession after the 2007 peak, 2) the 2012-2015 recovery, 3) some cooling in the market in 2016, and 4) the market heating up again in spring 2017. Note the differences in some of the trends lines between the house and condo market. San Francisco is the only county in the Bay Area where the market is dominated by condo listings: Thousands of new condos have been built since 2000 with many more in planning.
New Listings: The decline in the frequency of owners putting their homes on the market has played a critical role in pressurizing the markets in SF and, indeed, around the country.
Active Listings: The number of active listings on the market at any given time is determined by the number of sellers putting their homes on the market and the intensity of buyer demand jumping on those new listings (and taking them off the market).
Months Supply of Inventory (MSI) measures the interplay of supply and demand: The lower the MSI, the stronger the buyer demand as compared to the supply of listings available to purchase.
Average Days on Market: When demand increases, especially against a declining inventory, competitiveness between buyers increases and, typically, average days on market decline.
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San Francisco Luxury Home Market
Here are 7 charts from the more than 20 new analyses we have posted to our luxury report, which can be found in its entirety here: San Francisco Luxury Home Market
The luxury home market in the city has mostly bounced back from the cooling it experienced late-2015 through 2016, but, generally speaking, is still not quite as strong as it was in spring 2015. The first chart below breaks out luxury home sales by dollar per square foot values. The 3 MLS sales for over $3000 per square foot in the past year were all in the new Pacific Heights luxury condo project, The Pacific. 
San Francisco Luxury House Sales
House sales of $3m+ are concentrated mostly in 2 districts: The $3m to $5m market is dominated by the greater Noe, Eureka & Cole Valleys district; the $5m+ market is dominated by the Pacific & Presidio Heights, Cow Hollow and Marina district. On a dollar per square foot basis, the best values are in the St. Francis Wood/Forest Hill area, an area of large, gracious houses on larger than usual lots. 
The majority of luxury houses in San Francisco were built
before 1920; the great majority before 1940. 
San Francisco Luxury Condo, Co-op & TIC Sales
May 2017 saw the second highest monthly number of luxury condo sales ever, just below the number of sales in March 2015.
The biggest change in the luxury home market has been the dramatic drop, almost 50% year over year, in luxury condo sales reported to MLS in the greater South Beach/ SoMa/ Yerba Buena district, even as listing inventory there has hit new highs. This is the area where large, very expensive, high-rise projects continue to come on market, and, to some degree, they may be cannibalizing MLS sales in the resale market. Foreign buyers have played a significant role here in recent years and it is possible (we do not have hard data) that this demand has declined due to political issues here and in China. This is also where the unfortunate issues at the Millennium Tower (slight sinking and tilting; multiple lawsuits) are being extensively reported upon. Even though the construction issues at the Millennium are unique to itself, it may be that the storm of negative publicity is making affluent buyers more cautious about buying in the surrounding area. If so, that effect will presumably wear off in time, which may make this a good time to buy while inventory is high.
For the time being, the luxury condo market has shifted its center back to older, northern, highly affluent neighborhoods like Pacific Heights and Russian Hill. 
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New Housing Construction
Socketsite.com and the San Francisco Business Times performed excellent analyses recently of the state and pipeline of new housing construction in San Francisco, which we have illustrated in the two charts below. (Unfortunately, the annual Planning Department Housing Inventory Report, which usually comes out in May or June, has been delayed, probably until August or later.)
All our Bay Area real estate analyses can be found here: Paragon Market Reports
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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.
© 2017 Paragon Real Estate Group
A Second Wind for San Francisco Real Estate?
The Market Shifts Again after Cooling in 2016
May 2017 Report
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Since the year began, preliminary data has been trickling in regarding the Bay Area and city economy, and the commercial and residential real estate markets in particular, that appears to indicate that things may be heating up again after clearly cooling in late 2015 and 2016 (subsequent to the increasingly torrid conditions in the 4 years prior). It is far too early to come to any definitive conclusions regarding the long-term significance of recent local or national shifts: Some of the data is not always consistent with such a conclusion; some of the data may indicate over-exuberance in the markets. Though always hesitant to make too much of short-term trends, we will take a look at a few angles on current developments. A recent article in the San Francisco Business Times (of similar title) describes what is going on in commercial real estate, while this report will primarily focus on the SF residential market.
Percentage of Home Listings Accepting Offers
by Property Type & Price Segment
Note: 12-month median sales prices in San Francisco are currently
approximately $1,350,000 for houses and $1,100,000 for condos 
One of the classic statistics of supply and demand is percentage-of-listings-accepting-offers: The higher the percentage, the hotter the market. In the chart above, we assessed San Francisco by property type and price segment, comparing this past April to the same months of 2015 and 2016. Note that spring 2015 was considered a particularly feverish market characterized by very high demand and very low inventory. Most of the segments saw a considerable cooling from April 2015 to April 2016. However, almost all the segments bounced back in April 2017, and, indeed, the lower price segments performed significantly better than 2 years ago.
Other standard measures of market heat such as average-days-on-market, and months-supply-of-inventory saw similar changes (approaching all-time lows), though we did not chart them for this report. On the ground, increased buyer competition for an inadequate supply of houses under $2 million and condos under $1.5 million, dovetails with the statistics. We have also heard that new-project condo sales have seen a considerable surge in buyer demand, but we cannot verify that.
It will be interesting to see if these dynamics continue through Q2, usually the most active selling season of the year, and, if so, how they will affect median sales prices: As seen in the second chart below, so far, there has been no appreciable year-over-year change. However, most listings accepting offers in April will not close sale until May, which will then be reflected in median sales price data available in June.
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Year-over-Year SF Median Sales Price Comparison 
Looking at 3-month rolling median sales prices in the chart above, comparing the February through April periods of 2015, 2016 and 2017, the SF median house price is relatively flat since last year, and the median condo price is relatively flat since 2015, after both saw rapid appreciation rates in the previous years. (At this point, the recent, minor percentage changes comparing 3-month periods should not be considered significant.) The flattening in condo median price for the additional year reflects the earlier and greater cooling that occurred in that market segment.
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Comparative Neighborhood Values & Appreciation Trends
One of our readers suggested that it would be interesting to see multiple San Francisco neighborhoods illustrated on a single chart to compare home prices and appreciation rates. We got a little carried away and created more than 2 dozen graphs, of which 6 are below.
The extremely affluent Presidio Heights neighborhood has the largest houses and highest prices in the city, with next door Pacific Heights right behind. 
All the charts in this series are here: San Francisco Neighborhood Comparisons, which also includes an SF neighborhood map.
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San Francisco Luxury Home Pricing 
It has been clear over the past 2 years that the market for higher priced homes has cooled more than that for less expensive homes, and this is reflected in the first chart of this report. One of the big issues is that many luxury home sellers have simply been asking for more money than buyers are willing to pay: This is illustrated in the chart above which compares median sales prices with median asking prices, and then with the median prices of expired listings that were ultimately pulled from the market without selling.
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Various Economic Indicators
Bay Area Employment & Unemployment Rates
The lowest unemployment rates in 15 years, but the picture in hiring and
new high-tech hiring in particular, is a bit unclear with recent shifts up and down. 
S&P 500 Stock Index
Maybe some irrational exuberance at play since the election? 
Housing Affordability
Perhaps the biggest social, economic and political issue
in the Bay Area right now: Remaining close to all-time lows 
San Francisco, Alameda & Marin Rents
Rents in all 3 counties ticked back up in Q1 after recent declines, but too much
should not be made of this until substantiated over a longer term than 1 quarter 
Mortgage Interest Rates
Up after the election, down since the new year began,
rates remain extremely low by historical standards 
A growing factor in the inadequacy of listings on the market available to purchase, which adds competitive pressure on prices as buyers compete for very limited supply, is the fact that owners are simply moving much less often than historical norms. There was a very good overview of the pertinent issues to this profound demographic change in the May 14, 2017 New York Times.
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S&P Case-Shiller House Price Index
Another angle on Bay Area home price appreciation trends
According to Case-Shiller, which divides sales into 3 price tiers and measures Bay Area home price appreciation using its own proprietary algorithm (instead of median sales prices): In the period from April 2016 through February 2017 (its most recent report), less expensive homes appreciated by 7% during the period; mid-priced homes appreciated by 3%; and high-priced homes remained flat over the 11 months. Over the last year or two, the greatest pressure of buyer demand in the Bay Area has shifted to the more affordable home segment. Again, the first chart in this report highlights this dynamic in San Francisco.
C-S numbers all refer to a January 2000 home price set at 100. Thus, a reading of 249 signifies a price 149% over than of January 2000. 
Our full article on market cycles: 30+ Years of San Francisco Real Estate Cycles
All our analyses can be found here: Paragon Market Reports
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Gold, Google, Facebook & San Francisco Homes
Return on Investment Rates since 2011
Penthouses, Probates, Fixer-Uppers & Panoramic Views
A Survey of the SF Real Estate Market in 2016
January 2017 Report
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This first chart is a somewhat lighthearted, but we believe accurate look at how various 2011 investments would have played out through 2016. (FB is dated from its 2012 IPO.) When calculating appreciation, purchase and sale dates are critical factors, and changing those can alter the results significantly: Using 2011, the last bottom of the real estate market, as the purchase date certainly plays to the advantage of home price increases. If you bought gold or soybeans in 2011, you really should have sold them a couple years ago at the height of the commodity price boom.
Besides the appreciation percentage noted, buying a home in 2011 with all cash would have generated large, additional financial returns in the form of extremely low monthly housing costs. Buying it with 20% down supercharges the return on cash investment, and that is before adding in other advantages: Even with an 80% loan, by 2016 your monthly housing costs, with recent low interest rates and tax advantages, would be well below market rents. Then there is the huge capital gains exclusion on the sale of a primary residence, which would not apply to other investments. More details on the investment return calculation
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Sales of Probates, Penthouses, Fixer-Uppers, Lofts;
Homes with Views, Elevators & Wine Cellars 
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Long-term San Francisco
Median Home Price Appreciation 
San Francisco median house prices continued to appreciate in 2016, albeit, at 6%, at a considerably slower rate than the previous 4 years, while condo prices basically plateaued (and indeed dipped in some neighborhoods). As with almost everything to do with real estate values, it boils down mostly to supply and demand, as discussed below. 
In 2016, the supply (and sales) of house listings in the city continued to dwindle, while a surge of new-construction condo projects hitting the market appreciably increased the inventory of condos available to purchase. In 2003, house sales in San Francisco were over 50% higher than in 2016. According to a study by the National Association of Realtors, the median time house owners are staying in their homes has jumped from an average of 6 years in 1987-2008 to 9 years since: Owners are getting older, not changing jobs as often, and baby boomers are aging in place as NAR put it. House owners sell their homes much less frequently than condo owners, who tend to be younger. In SF, there is also the factor of a reluctance to sell when that means facing a very challenging market for buyers. And with very low interest rates, and very high rents, some owners are renting out their houses instead of selling.
It all boils down to a continuing strong demand for houses meeting a steadily declining supply: Even with a market that cooled somewhat in 2016, competition between buyers continues to push house prices up, especially in more affordable neighborhoods. The equation is different for condos, which has become the dominant property-sales type in the city: A cooling market is meeting increased supply. There has been no crash in condo prices, but areas with the greatest quantity of new condo construction have seen small declines.
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As can be seen above, two of the most affordable districts for houses, Districts 10 and 2, also provide 37% of all the house sales in the city. Generally speaking, they have continued to experience very strong buyer demand in 2016.
District 9, a large district that stretches from SoMa, South Beach and Mission Bay to Potrero Hill, Dogpatch and Inner Mission, is increasingly dominating condo sales in the city. The great majority of new condo construction, especially of the largest projects, has been occurring in this district.
All our breakdowns by neighborhood and home size are here: SF Home Price Tables
Our complete collection of district analyses: SF District & Neighborhood Sales Breakdowns
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San Francisco Overview Market Statistics
The following classic measures of market heat all tell the same story: Coming out of the recession in 2011, the San Francisco market became increasingly frenzied through the spring of 2015. In late 2015, as housing affordability became a critical issue, and the local high-tech economy saw some cooling, and financial markets worldwide experienced increasing volatility, the SF real estate market began to cool and normalize. Buyer competition for new listings softened, overbidding declined, days-on-market increased, appreciation declined or plateaued, and so on. And the condo market cooled more than the house market due to issues discussed above.
2016 saw a reasonable adjustment to a desperately overheated market, but nothing that suggests, so far, an imminent, dramatic downturn. Indeed, by national standards, most of our current statistics still define a relatively robust market. In a recent interview, Ted Egan, chief economist of the City of San Francisco, put the odds of a new recession at 10% or less.
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Real Estate Market Seasonality
Listing and sales activity builds from early January, the nadir of the market, into spring, typically the most active season. Accepted-offer activity provides an excellent illustration of the heat of the market during different times of the year. 
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3 Important Economic Indicators
San Francisco & Bay Area Employment Trends
After dropping a little in the first half of 2016, SF and Bay Area employment numbers jumped back up in the second half, an encouraging sign for the local economy. 
Mortgage Interest Rates in 2016
Interest rates popped 22% higher since the election, though they still remain very low by any historical measure. Where they will go now is a subject of intense speculation since they are a critical component of housing affordability. 
The S&P 500 Stock Index since 1994
To the surprise of many, U.S. stock markets also popped after the election to their highest points ever.
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And now on to 2017, certain to be another interesting year.
Wishing you and yours a safe, healthy, happy and prosperous New Year.
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It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis, which we are happy to provide upon request. Please call or email if you have any questions or need assistance in any way.
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 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.
© 2017 Paragon Real Estate Group