The San Francisco Residential Real Estate Market – The Story is Still Low Inventory

September 2011 Update

August 2011 Market Snapshot
As compared to August of 2010, we had 25% fewer listings for sale as of 8/1; 6% fewer new listings; 28% more listings accepting offers; 7% more closed sales; 30% fewer expired/ withdrawn listings; and 28% fewer listings for sale as of 8/31. Every statistic points to a market with too little inventory to satisfy buyer demand. It is now common for appealing, well-priced homes to receive multiple offers within 1 or 2 weeks of coming on market. (Note that closed sales lag accepted offers by 4-8 weeks, so August’s closed sales mostly reflect accepted offers in late June and July.)


click to enlarge

SF Homes for Sale
The inventory of SF homes available to purchase continued to decline in August. There were approximately 550 fewer MLS listings for sale in August of 2011 as in August of 2010 – and that does not factor in the large parallel reduction in new-development condos on the market. Last year in September, we saw the biggest burst of new listings of the past 2+ years, which helped power sales volume through the autumn. A good many buyers (and their agents) would be grateful to see a similar surge in listings this September.


click to enlarge

Percentage of Listings Accepting Offers
One of the clearest statistics of the current (low) supply and (high) demand dynamic is the percentage of listings which accept offers within a given month. August, which is typically a slow month, continued the trend begun earlier in 2011 with a very high percentage of listings going under contract. August’s 22% – 23% is a tremendous jump from the 14% of August 2010, and is among the highest of recent years.


click to enlarge

Average Dollar per Square Foot for SF Houses
Most of the distress house sales in San Francisco are in the lower price ranges (lower for the city) and in the less affluent neighborhoods, and that is where they impact values. Once one gets above $750,000, distress house sales are relatively rare and impact values very little. Here we see the huge difference in average dollar per square foot values between homes above and below $750,000. Two different markets: higher priced houses gaining in values, while lower priced houses (with a large percentage of distress sales) so far continuing to decline.


click to enlarge

Average Dollar per Square Foot for SF Condos
Lower priced condos are often heavily impacted by distress sales, while higher priced condos are not. In the second quarter of 2011, dollar per square foot values for condos $650,000 and above were at their highest since 2008. Average dollar per square foot is a very general statistic of a large basket of very different properties in very different locations. As always, sustained longer term trends are what are meaningful.


click to enlarge

4-Bedroom House Values
We just completed our semi-annual analysis of SF home sales by neighborhood, property type and bedroom count, looking at the number of MLS sales; low, high and median prices; average size and average dollar per square foot. For the complete report:
Values by Neighborhood & Property Type


click to enlarge

2-Bedroom Condo Values
The number of MLS sales; low, high and median prices; average size and average dollar per square foot. For our complete report:
SF Values by Neighborhood & Property Type


click to enlarge

S&P Case-Shiller Index
The Case-Shiller Index that most applies to SF is their “High Tier” Home Price Index. (Indeed, an Upper High Tier Price Index would be even more applicable.) This Index for the 5-county San Francisco Metro Area recorded its fourth increase in as many months. We put much less stock in monthly fluctuations than in longer term trends – right now the trend is mildly upward. The chart numbers reflect price changes based upon an assumption of January 2000 values equaling 100. Thus 144 = a value 44% above January 2000. A change from 184 to 144 reflects a 22% decline. For more information about Case-Shiller:
Case-Shiller Index Deciphered


click to enlarge

Months’ Supply of Inventory (MSI)
MSI in San Francisco is as low as it has been in years, reflecting motivated buyers snapping up homes in a low-inventory environment. For just houses, MSI is lower still, and in some hot neighborhoods, MSI is under 2 months of inventory, which is considered very, very low.


click to enlarge

Average Days on Market (DOM)
This statistic lines up with all the others. The hotter the market, the faster buyers act to buy appealing listings. And the current average of 58-60 days, while historically low, is distorted by distress sales (a much longer process), sales that fall through (and come back on market, typically to sell to a second buyer), and especially distress sales that fall through, all of which raise the average DOM significantly. For example, the average days-on-market figure for distress condo sales is now 95 days. In fact, most of the homes selling today are accepting offers within 2 to 3 weeks of going on market.


click to enlarge

30-Year Mortgage Interest Rates
The upside of all the financial markets turmoil is incredibly low interest rates, which, of course, make a huge difference in the ongoing cost of home ownership. Along with rising rents in the city, this is one of the big reasons why the Rent vs. Buy equation is changing so dramatically. In early 2010, pundits predicted that 30-year rates would be over 6% by now, but instead we’re hitting new lows. Rates can fluctuate dramatically. Chart by Bankrate.com. To make your own Rent vs. Buy calculations:
Rent vs. Buy Calculator


click to enlarge

DISTRESS HOME SALE can be one of two things: the sale of a bank-owned property typically pursuant to a foreclosure (also called an REO sale), or a so-called short sale, in which the seller-owner must get lender approval for a “short” payoff, a reduction in the loan amounts due on the property in order for the sale to close. These 2 kinds of distress sale are actually different animals, though both can be long, tiresome endeavors to close because one is dealing with bank bureaucracies. (In 2010 in California, about 40% of short sales fell through without closing sale.) However, in an REO sale, the seller is the bank (which may own hundreds or thousands of these properties), the property often looks “distressed” and the bank has very limited disclosure responsibilities (which is a liability to buyers). In a short sale, the seller is usually the individual owner-occupier, the property condition is and shows much better, and full seller disclosure laws apply (the buyer knows more about what he or she is buying). Both types of distress sale can be very good deals for savvy buyers and indeed investors are buying many of the REO properties around the country. But there are potentially greater risks and almost always greater hassle factors involved.

MEDIAN SALES PRICE is that price at which half the sales occur for more and half for less. It can be, and often is, affected by other factors besides changes in market values, such as short-term or seasonal changes in inventory or buying trends. Though often quoted in the media as such, the median sales price is NOT like the price for a share of stock, i.e. a definitive reflection of value and changes in value, and monthly fluctuations are generally meaningless. If market values are truly changing, the median price will consistently rise or sink over a longer term than just 2 or 3 months, and also be supported by other supply and demand statistical trends.

DAYS ON MARKET (DOM) are the number of days between a listing going on market and accepting an offer. The lower the average days on market figure, typically the stronger the buyer demand and the hotter the market. Note that this statistic is distorted by distress sales, which often have a very high DOM, by that minority percentage of listings that sell after multiple price reductions, and by deals that fall through after offer acceptance (the listings come back on market, but the DOM clock keeping ticking). Appealing, well-priced new listings often accept offers within 7 to 14 days of coming on market.

MONTHS SUPPLY OF INVENTORY (MSI) reflects the number of months it would take to sell the existing inventory of homes for sale at current market conditions. The lower the MSI, the stronger the demand as compared to the supply and the hotter the market. Typically, below 3-4 months of inventory is considered a “Seller’s market”, 4-6 months a relatively balanced market, and 7 months and above, a “Buyer’s market.”

DOLLAR PER SQUARE FOOT ($/sqft) is based upon the home’s interior living space and does not include garages, unfinished attics and basements, rooms built without permit, lot size, or patios and decks — though all these can still add value to a home. These figures are usually derived from appraisals or tax records, but are sometimes unreliable or unreported altogether. All things being equal, a house will sell for a higher dollar per square foot than a condo (due to land value), a condo higher than a TIC (quality of title), and a TIC higher than a multi-unit building (quality of use). Everything being equal, a smaller home will sell for a higher $/sqft than a larger one. (However, things are rarely equal in real estate.) There are often surprisingly wide variations of value within neighborhoods and averages may be distorted by one or two sales substantially higher or lower than the norm, especially when the total number of sales is small. Location, condition, amenities, parking, views, lot size & outdoor space all affect $/sqft home values. Typically, the highest dollar per square foot figures in San Francisco are achieved by penthouse condos with utterly spectacular views in prestige buildings.

In real estate, sustained longer term trends across a variety of statistical measurements are the meaningful ones – and these are what we try to provide in our analyses. The fluctuations of monthly statistics — often quoted without context in news articles — are usually virtually meaningless (but make dramatic headlines).

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.

Share Button