The San Francisco Luxury Home Market

A market trends overview by the Paragon Real Estate Group
for San Francisco Home Sales of $1,500,000 & Above

October 2011 Update

It’s not unusual for the high-end home market to slow down during the summer months, just as it does to a greater degree during the holiday season from mid-November to mid-January. However, this year, though 3rd quarter activity was generally comparable to last year’s, considering how hot the second quarter of 2011 had been, the luxury house and condo market slowed down more than expected. This is probably due to the extreme volatility in the financial markets and the huge concerns regarding the European debt crisis experienced over the summer. More than other market segments, the buyers and sellers of luxury homes are keenly attuned to such events and have a tendency to put large, new financial endeavors on hold while waiting for things to shake out or stabilize.

It is also true that in the spring, it appeared that high-tech IPOs would continue to create large amounts of new wealth in the Bay Area, and many of these IPOs have since been put on hold. Presumably, this is a temporary situation.

Even with the cooling off from the very hot second quarter, strong demand remains for the best properties — best location, pride of ownership, well prepared for showing and well priced. Activity did pick up in the latter part of September, which may signal the beginning of a strong fourth quarter.

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Sales Price to List Price Percentage, Days on Market,
Price Reductions & Expired Listings

Most of the luxury homes that do sell, sell quickly at very close to asking price. Those going through price reductions spend a much longer time on market and sell at an average discount of 18% off original list price. And many listings still expire without selling, usually because the market deems them overpriced.


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Luxury House & Condo Sales

Sales in the third quarter fell substantially from the second quarter — a not uncommon drop from spring to summer sales seasons. The number of sales was comparable to third quarter results in recent years. Sales close 4-8 weeks after offers are accepted.


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Listings Accepting Offers

While comparable to the 3rd quarters of 2010 and 2009, there was a large drop in both the number and percentage of luxury home listings accepting offers when compared to the second quarter of 2011, when we hit the highest points since 2008. Activity did pick up in the three weeks ending October 9th — those were the most active three weeks for luxury homes accepting offers since May.

This chart shows accepted offers by quarter.


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This chart shows the percentage of listings accepting offers by quarter.


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And this chart shows listings accepting offers by WEEK, from May through October 9th. One can see the pick up in activity that started in mid-September after a very slow August. This is the most current information we have regarding the heat of the market.


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Average Dollar per Square Foot

Dollar per square foot values, even in the high-end, vary widely from neighborhood to neighborhood. The absolute highest are typically paid for luxury condos in prestige buildings with staggering views. Remember that short-term fluctuations are relatively meaningless — they occur naturally since the “basket” of homes sold varies from month to month, quarter to quarter.


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Luxury Home Sales by San Francisco Realtor District

The older prestige neighborhoods running across the north of the city from Sea Cliff through Pacific Heights to Russian & Telegraph Hills still dominate sales, but high-end sales in the greater Noe Valley/ Castro/ Haight Ashbury district have soared since the late nineties, and luxury condos in new developments in South Beach, SOMA and Yerba Buena are also a major part of this market now. St. Francis Woods has been an enclave for sales of big houses for quite some time.


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Inventory of Luxury Homes for Sale

The number of new luxury home listings ticked up in September from the summer months, but was still well below that of September 2010. The same was true for overall inventory of high-end homes for sale.


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Months’ Supply of Inventory (MSI)

While not historically high at over 4 months of inventory, the MSI for luxury homes is running higher than that for all SF houses and condos, which in September was under 3 months (which is considered very low). Still luxury home MSI this past September dropped from the summer months and was well below that of September 2010. We expect it to drop further in October.


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Average Days on Market (DOM) Before Acceptance of Offer

Average DOM is about as low as it has been since 2008. Those luxury homes that are selling are selling relatively quickly.


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Luxury Home Sales vs. Listings Expired or Withdrawn

It’s not unusual for the number of expired listings to jump during the summer months and that is what happened in the third quarter. Still the third quarter 2011 had a much lower percentage of expired listings than the third quarters of 2010 and 2009.


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Unit Sales of Homes of $2,000,000 and Above

The second quarter saw a big jump to sales levels not seen since 2008, but in the third quarter sales dropped back to a more normal number. Paragon’s percentage market share in the $2m+ home segment increased by 50% year over year, and after 7 years in business, Paragon is now 1 of the 4 top brokerages for luxury home sales in the city.


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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.

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.

Median and average statistics are generalities subject to fluctuation due to a variety of reasons (besides changes in value): how they apply to any specific property is unknown. Averages may be distorted by one or two sales substantially higher or lower than the norm, especially when sample size is small. Sales not reported to MLS – such as many new-development condo sales — are not included in this analysis. All figures should be considered approximate and are derived from sources deemed reliable, but may contain errors and omissions, and not warranted. We are happy to provide or direct you to the original data upon which each chart is based.

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