Markets Can Turn With A Vengeance

April 2012 San Francisco Update

Several times in the past 30 years, the San Francisco real estate market has turned up or down very quickly and very dramatically: in the mid-eighties – up; early nineties – down; 1996 – up (and up and up, except for the dotcom hiccup); 2008 – way down; and now we believe another dramatic turn up has begun.

By virtually every statistical measure of supply and demand, the city’s market is experiencing major acceleration. Multiple-offer, competitive-bidding situations have hit levels not seen in many years and this is putting strong upward pressure on values in many of San Francisco’s neighborhoods. The more affluent areas of the city – never much impacted by distress sales and now highly sought after by buyers – are leading the recovery.

We know this runs contrary to the Case-Shiller Index, but the city, and especially its higher-end segments, make up only a very small part of the Case-Shiller 5-county SF Metro Area, and currently the Index does not reflect the city’s market conditions and trends.

A new war or financial crisis might derail the upturn, but absent such an event, and considering the city’s improving economic conditions, we expect it will continue.

Two thirds of the city’s home sales now average a sales price over the original
list price. The competition between motivated buyers has heated up enormously.

SF is now seeing the highest percentages of listings accepting offers in memory.
For all property types. TICs have made a particularly dramatic turnaround recently,
probably due to the severe shortage of new and resale condos available to purchase.

The lowest ratio of expired and withdrawn listings – i.e. homes that do not sell,
typically due to being perceived as overpriced – in many years.

The lowest Months Supply of Inventory (MSI) readings in memory. For all property types.

An incredibly low level of properties available to purchase. Right now, properties are actually selling more quickly than new listings are coming on market.

Average Days on Market have crashed for all property types. A substantial percentage of listings is selling virtually immediately upon coming on market (i.e. within 7-10 days).

We’re starting to see upward movement in values in some San Francisco neighborhoods, especially those most popular with affluent high-tech buyers. Remember that market demand may take a while to translate into changes in values, and that different city neighborhoods are recovering at different speeds. San Francisco’s market is definitely recovering much more quickly than most other areas of the Bay Area, state and country.

The luxury home market is also seeing significant increases in demand and upward pressure on values.

The number of distress home listings is markedly decreasing (and, in any case, they are generally clustered in the less affluent neighborhoods and in the lower price ranges). If the recovery continues, fewer and fewer homes will require transfer as distress sales.

In case you missed it, here is a chart from our recent analysis of San Francisco demographics.

All data herein is from sources deemed reliable but may contain errors, and is subject to revision.

April 2012 © Paragon Real Estate Group

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