The San Francisco Luxury Home Market

The Paragon Real Estate Group
July 2011 Quarterly Update

As seen below, by virtually every statistical measure of supply and demand, the luxury home segment in San Francisco dramatically strengthened in the 2nd quarter. And this is what we are clearly experiencing on the ground in the day to day transactional market here in the city. One always wants to see trends continue for minimally 2 or 3 quarters before jumping to headline conclusions about market declines or rebounds, but right now the signs are quite positive.

SF Luxury Home Sales by Quarter
In this chart, luxury homes are defined as those selling for $1,500,000 and above. The second quarter saw a surge in sales – as is not uncommon in the 2nd quarter/ spring sales season. Luxury house sales were comparable to those of last fall and last spring, but luxury condo, co-op and TIC sales exploded to by far their highest level in 3 years. Closed sales follow accepted-offer activity typically by 4-8 weeks, so 2nd quarter sales figures mostly reflect accepted-offer activity in mid-February to mid-May. Sales $1.5m and above make up about 10% of the overall home market in the city.

click for larger image

SF Luxury Home Listings Accepting Offers
As measured by the number of luxury homes accepting offers, the 2nd quarter was the strongest in 3 years: about 15% higher than last year’s figures. This augurs well for closed sales in the 3rd quarter.

click for larger image

Luxury Home Sales by Neighborhood
In these columns, luxury HOUSE sales are in red; luxury CONDO, CO-OP and TIC sales are in blue. The northern prestige neighborhoods from Sea Cliff to Pacific Heights to Telegraph Hill still make up the lion’s share of this market, but the Noe Valley-Eureka Valley-Cole Valley district and the SOMA-South Beach-Potrero Hill district have also rebounded very strongly – many of the high-end, high-tech buyers coming into the market want to live closer to highways going down the peninsula. St. Francis Wood also continues to be a bastion of large-size, traditional, higher end house sales.

click for larger image

Percentage of Listings Accepting Offers
This may be the purest measure of buyer demand vs. the supply of homes available for sale, and in the 2nd quarter, the percentage of listings going under contract (accepting offers) was the highest, by far, in the past 3 years. High demand against lower supply will typically exert upward pressure on prices.

click for larger image

Inventory of Luxury Homes for Sale
The number of high-end homes available to purchase is much lower – over 30% lower — than at comparable periods of 2009 and 2010, which makes the high number of sales that much more significant. The quantity of sales in this market segment is definitely being held back by simple lack of inventory. The situation of more buyers chasing fewer homes often leads to multiple offers on appealing new listings.

click for larger image

Average Dollar per Square Foot
Median sales prices and average dollar per square foot are less useful measurements when assessing a data set of sales running all the way from $1,500,000 to $12,000,000+ in dozens of different neighborhoods around the city, but for what it’s worth average dollar per square foot has been climbing. If it continues to do so over the next two quarters as well, it would be reasonable to see it as an indicator of rising values.

click for larger image

Months’ Supply of Inventory (MSI)
The MSI for luxury homes in San Francisco has been very low since February when the city market started to pick up, hovering in the 2.7 to 3.3 months of inventory. The lower the MSI, the hotter the market. Typically, this level of MSI would be considered a strong “Seller’s Market.”

click for larger image

Average Days on Market (DOM)
The lower the days on market, the stronger the buyer demand. Average DOM for SF luxury homes is now as low as it has been since 2008.

click for larger image

Expired/Withdrawn vs. Sold Listings
The stronger the market, the fewer the homes that will expire or be withdrawn from the market without selling. That ratio is now at its lowest level in 3 years. Still, even in this period of increased demand, for every 10 luxury homes that sold in the 2nd quarter, about 4 expired or were withdrawn without selling, typically due to being perceived as overpriced.

click for larger image

Sales With & Without Price Reductions
If a home is well priced, well prepared and comprehensively marketed, it typically sells relatively quickly at very close to (or even over) the asking price. Those homes that are not perceived as good values usually go through 1 or more price reductions and sit on the market for much longer – almost 3 months longer on average – before selling at a significant discount to original list price. And, of course, a good percentage of listings don’t sell at all, but are withdrawn from the market.

click for larger image

SF Home Sales $2,000,000 & Above
The higher the price range, the more the “luxury home” tag means. The second quarter saw the highest number of home sales of $2m and above since 2008, and the competition for the best houses in this segment can be ferocious. New high-tech money appears to be driving a lot of this demand, and absent another financial markets meltdown, we appear to be at the beginning of this particular upward curve of demand in the Bay Area. It will be interesting to see how business holds up during the summer months, typically a slower period in the market.

click for larger image

In real estate, longer term trends across a variety of statistical measurements are the meaningful ones — which are what we try to provide in our analyses. The fluctuations of monthly statistics in particular — often quoted with little or no context in the media – are, unfortunately, virtually worthless in assessing what’s really going on in the real estate market in San Francisco.

Statistics are generalities, subject to fluctuation due to a variety of reasons. All information herein is derived from sources deemed reliable, but may contain errors and omissions, and is not warranted. Sales not reported to MLS are not included in this analysis. We can supply the raw data behind any of our charts, if you are so interested.

Share Button