Category archive - Market News

Q3 SF Real Estate Market Review

Year-over-year, a low inventory homes market dropped even lower, while buyer demand increased to keep the pot boiling in San Francisco through the third quarter, when activity typically cools down between the spring and autumn selling seasons. Since closed sales in each month mostly reflect the market heat in the previous month, when the offers are actually negotiated, we will not have hard data on September until October sales data becomes available in November. One thing we do know is that the number of new listings coming on market in September, which is usually the month of the year with the highest number of new listings, is down considerably from last year – but the number of listings accepting offers increased: Less inventory, but more demand.

Q3 SF Median Home Sales Price Changes since 2005

San Francisco Q3 Median Home Price Trends

The Q3 SF median house sales price was $1,365,000 and the median SF condo sales price was $1,175,000, considerable year-over-year increases over Q3 2016 prices: 7% and 11% respectively. It is not unusual for median prices to drop from Q2 to Q3, to a large degree due to the seasonal decline in luxury home sales, as well as the typical overall market cooling during the summer, and this occurred for houses, which dropped $75,000 from Q2, similar to drops in previous years. But condos bucked this trend and increased $40,000 quarter to quarter. (Q2 to Q3 change is not illustrated on this chart.) However, while the house inventory in the city has been relatively unchanged for 60+ years, tens of thousands of new condos have come into the market over recent decades, which means that comparing the basket of sales in different periods is not always apples to apples.

Q3 San Francisco Market Trends since 2005
Comparing Q3 statistics for the past 12 years

Q3 New Listings Coming on Market since 2005

New listings hitting the market dropped appreciably year-over-year, doing no favors for buyers competing for homes in Q3 overall, and in September specifically.

San Francisco Q3 New Home Listings on Market

Months Supply of Inventory (MSI), Q3 since 2005

MSI compares demand to supply in one statistic: The lower the MSI, the higher the demand vs. the number of listings available to purchase. The MSI for the SF house market in Q3 2017 was as low as in any Q3 during the past 12 years. For San Francisco condos, the MSI was somewhat higher, but still historically low (but does not include the substantial inventory of new-project condo listings, not listed in MLS). Both are down significantly from Q3 of 2016: 2016 was a cooler market between two very hot markets in 2015 and 2017.

San Francisco Q3 Months Supply of Inventory

Average Days on Market, Q3 since 2005

San Francisco Q3 Days on Market

Overbidding List Prices
by Month since December 2015

In the last 6 years, overbidding percentages have usually declined from the Q2 spring selling season to the quieter Q3 summer market. But not this year: This year overbidding increased in July and September to their highest points since mid-2015.

San Francisco Overbidding Home Prices

Context Economic Factors to Bay Area Housing Markets

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We recently completed a report placing the Bay Area housing market within the context of a wide variety of other economic and demographic dynamics, such as population growth, employment and hiring, the stock and the IPO markets, consumer confidence, interest rates, commercial lease rates, , aging homeowners (who sell less frequently), housing affordability and new housing construction. Because conditions, trends and cycles seen among them are, more often than not, closely interrelated. The full report is online here: Economic Context Report.

San Francisco Luxury House & Condo Markets

In September, we issued 2 detailed reports on the San Francisco luxury house market, and the SF luxury condo, co-op and TIC market. Above are 2 of many updated analyses. The complete reports can be found here:

Link to our SF luxury house market update
Link to our SF luxury condo and co-op market update

San Francisco Investment Property Market

After dropping in 2016, SF residential rents appear to be making a small recovery, though the data is still very short-term, and there are thousands of new apartments in the new construction pipeline in the city. This chart is from our latest report on the San Francisco, Alameda and Marin multi-unit residential markets:

Link to our apartment building market report

Trends in Selected San Francisco Neighborhoods

We have dozens of analyses of appreciation trends within specific SF neighborhoods and districts, and below is a sampling, some by median sales price and others by average dollar per square foot value. Some city neighborhoods plateaued or saw declines in values in 2016, when segments of the market distinctly cooled: Generally speaking, these were more expensive home segments, and condo markets most impacted by new-project condos coming on market with major new supply. Affordable house markets largely continued to appreciate in 2016. In 2017 to date, most areas of the city have experienced further appreciation.

Changes in these statistics do not necessarily correspond exactly to changes in fair market value, as they can be affected by a variety of factors. Neighborhoods with relatively few sales and broader ranges in individual sales prices are most prone to fluctuations unrelated to changes in fair market value. Longer-term trends are always more meaningful than shorter term. If you are interested in a neighborhood not included below, please let us know.

Please let us know if you have questions or we can be of assistance in any other way. Information on neighborhoods not included in this report is readily available.

SF neighborhood home price tables: Median Sales Prices by Bedroom Count

All our real estate analyses can be found here: Paragon Market Reports

Over the past 12 months, Paragon sold more San Francisco residential and multi-unit residential real estate than any other brokerage. (Dollar volume sales reported to MLS per Broker Metrics.)

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

 No one knows San Francisco real estate better than Paragon.

The Multi-Unit Residential Property Markets of San Francisco, Alameda & Marin Counties

We recently completed a report placing the Bay Area housing market within the context of a wide variety of other economic dynamics, such as population growth, employment and hiring, the stock and the IPO markets, consumer confidence, interest rates, commercial lease rates, housing affordability and new housing construction. Because conditions, trends and cycles seen in housing markets and in these other fundamental economic realities are, more often than not, tied together quite closely. The full report is online here: Economic Context Report.

Context Economic Factors to Bay Area Housing Markets

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Our updated analyses specific to the Bay Area apartment building market begin below.

This report generally separates out the 2-4 unit and the 5+ unit apartment building markets in the 3 counties, since they typically have somewhat different dynamics and values. When analyzing statistics by submarket, we are sometimes working with a relatively small number of sales, which can lead to anomalous fluctuations. Sudden outsized jumps or declines in median prices or average dollar per square foot values should be taken with a grain of salt until the trend is substantiated over the longer term. All the statistics below are broad generalities covering a wide variety of buildings of different locations, sizes, qualities, condition, incomes, and expense ratios.

 

Sales & Values by Submarket

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Overview Trends by County

Marin is sometimes excluded from analyses pertaining to larger apartment buildings simply because the number of sales there is often too low for reliable statistics to be generated.

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Chart: Sales by Price Segment, SF 5+ Units
Chart: Sales by Price Segment, SF 2-4 Units

 

Rent Rate Statistics

According to Zillow, median list rents ticked back up in the first half of 2017, reversing several previous quarters of decline in 2016, but still well down from peaks in 2015: This trend is relatively consistent across Bay Area counties, as well as within San Francisco when looking at rents by unit size. However, the change is still short-term and too much should not be made of it until substantiated over the longer term. Hiring trends, which often drive rent rates, have been fluctuating up and down over the past 20 months, with a general overall plateauing in employment numbers over the time period (after years of huge increases). At the same time, there are still many thousands of new apartments in the construction pipeline in the city.

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Market Metrics by County & San Francisco Submarket
Cap Rates, Price per Unit & Days on Market

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San Francisco Trend Overviews

These 3 charts below for the overall SF market, from our mid-year report, give additional context to the submarket metrics illustrated above.

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San Francisco Supply & Demand Dynamics
Active Listings, Listings Accepting Offers & Seasonality

As of 10/2/17, there were 107 active 2-4 unit building listings in San Francisco with 43 listings pending sale (offers accepted but not yet closed sale). In the SF 5+ unit building market, there were 29 active listings with 28 pending sale (a relatively high number). These two charts illustrate the size of the SF multi-unit markets in any given month, and how market activity ebbs and flows by season. In mid-November, local real estate markets usually plunge in activity until picking up again in February and March.

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

This chart below illustrates different reactions to properties that the market deems fairly priced or priced too high: Some listings sell quickly for over asking price; some must go through one or more price reductions to sell after a much longer time on market; and some do not sell at all, but are pulled off the market because of buyer indifference. Though this chart is specific to San Francisco multi-unit buildings, the same basic trends are found in every county and every segment of our real estate markets.

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Q3 2017 Sales of San Francisco 5+ Unit
Apartment Buildings

San Francisco is a unique residential-investment market: the buildings are smaller and older than in most places, built in a wide range of architectural styles. The great majority of the market is under rent control, which makes upside rental-income potential a big component of valuation, even if it is unknown when that potential might be realized. Furthermore, the units are typically very unlike those in suburban garden-apartment complexes, and within the city the variety in buildings and units is enormous.

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Sales reported by 10/2/17. Data from sources deemed reliable but may contain errors
and subject to revision. May not contain every sale occurring in the period.

In real estate, the devil is always in the details: If you are interested in further insight into the details of any of the above sales, or regarding properties currently on the market, please contact me.

 

Long-Term Appreciation Trends: 3 Major SF Districts

These 3 charts review the 2-4 unit building markets in three broad sections of the city: The very expensive, northern district encompassing the greater Pacific Heights area; the central Noe, Eureka & Cole Valleys district; and the Richmond district in the northwest corner of the city. We use the 2-4 unit building markets because the greater quantity of sales makes the statistics much more meaningful.

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Broker Performance in Residential Multi-Unit Property Sales

According to Broker Metrics, which crunches MLS sales data, of the largest brokerages in San Francisco for multi-unit residential property sales, Paragon ranks first for highest sales volume (in both 2+ and 5+ unit building sales). Paragon represents both many more buyers and many more sellers in successfully completed transactions. We also know and do significant amounts of business in surrounding Bay Area counties.

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All Paragon market reports can be found here

It is impossible to know how median and average value statistics apply to any particular apartment building without a specific, tailored, comparative market analysis, which can be provided upon request.

Numbers reflect sales reported by 10/2/17. These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities: This is especially true for multi-unit properties, with the enormous range of property types, sizes, conditions, circumstances, qualities, financial data and locations. We are often dependent upon listing agents for income and expense details, which can be of varying accuracy. Many Alameda sales do not report cap rates, so the calculation in this report is based only upon those that did. A percentage of investment property sales are not reported to MLS, which sometimes limits our ability for more comprehensive data analysis. All numbers to be considered approximate.

© 2017 Paragon Commercial Brokerage

The Economic Context Behind Housing Market Trends

The real estate markets in the SF Bay Area are parts in an overall economic reality that includes a number of financial, demographic and psychological components – all of which are impacting each other in constantly changing ways. Some are local, and others reflect national or even international events or trends. They often run in parallel, but can also diverge or reverse themselves very suddenly. Below are snapshot analyses of what we see as major cogs in this economic machine.

In some charts, we use specific data for San Francisco itself, but the trends seen there – such as home price appreciation, employment and housing affordability – are playing out, to varying degrees, throughout the Bay Area. That is, we believe these economic context illustrations generally pertain to the entire region.

The charts are relatively self-explanatory if you wish to skip the descriptive text.

Sudden, Dramatic Population Growth

Spectacular Employment Growth

The Bay Area has had the strongest employment trends in the nation, adding approximately 600,000 new jobs in the past 7 years. As illustrated below, San Francisco alone has added about 100,000 in that time period. All these new people need somewhere to live, and many of these new jobs are very well-paid. Note that after dropping in early 2016 (per the economic cooling to be discussed later in this report) and then climbing back up again in the second half of 2016, hiring has basically plateaued in 2017. (Too much should not be made of short-term data.)

Employment Chart: SF, San Mateo, Alameda & Contra Costa

New Housing Construction

Though ramping up in recent years, new housing construction has not come close to meeting the needs of a rapidly increasing population. Most of the recent new construction would not be considered “affordable,” as developers have concentrated on more expensive condo and apartment construction. So while helping to fill an urgent need for new housing, it has not really helped less affluent, normal-working-class segments of the population.

New Housing Pipeline

A snapshot of what is currently in the pipeline for new construction in the city. 3 huge, long-term projects make up a big percentage of units planned. Note that the pipeline is constantly changing: new plans submitted, and existing plans changed or even abandoned. Just because something is in the pipeline does not mean it will end up being built. Economic downturns typically shut down new development plans very quickly.

Mortgage Interest Rate Decline

The 35% to 45% decline in interest rates since 2007 has played an enormous role in real estate markets, in effect subsidizing much of the home price increases seen in the past 6-7 years. Since the 2016 election, rates first jumped up 23% and then declined again to, historically, very competitive rates below 4%. The fear that rates might rise again soon may have been one factor behind the feverish spring 2017 markets seen around the Bay Area. It is notoriously difficult to predict interest rate movements with any confidence.

Consumer Confidence

The monthly fluctuations in consumer confidence reported on in the media are relatively meaningless and without context, but longer-term movements are much more meaningful to overall economic trends. Psychology – confidence, optimism, fear, pessimism – often plays a huge role in financial and real estate markets. And events can sometimes turn consumer confidence one way or another very rapidly, whether such movements are rational or not.

New Wealth Creation: Initial Public Offerings

Besides the effect of increased, well-paid employment, the sudden creation of brand new wealth has been a very, very big factor in Bay Area real estate markets. IPOs can create tens of thousands of residents who suddenly feel much, much wealthier, and that impacts home buying. Local IPO activity increased through mid-2015, pouring hundreds of billions of new dollars into the economy, and then suddenly stopped in its tracks when financial markets suddenly became very volatile in September 2015. This particularly affected the high-end homes segment: Not only were new millionaires not being minted by the dozen, but the affluent are typically most sensitive to financial news and market volatility.

The Bay Area has an astounding pipeline of possible IPOs in the not too distant future – Uber, Airbnb, Palantir and Pinterest, to name a few of the biggest. If and when these companies go public, and how the IPOs are received, are a real wildcard for the region’s real estate markets. There is the potential to unlock tremendous wealth held in relatively non-liquid private equity into billions of spendable dollars. On the other hand, if there was a dotcom-like implosion, the effects would be quite serious. (We don’t expect such an implosion, though a sudden financial crisis could still have significant negative ramifications, especially for currently unprofitable start-ups.)

New Wealth: Stock Market Appreciation

The gigantic surge in the stock market over the past 9 years has also made people feel much wealthier, which, besides making new money available to purchase a home or a bigger home, stimulates consumer (and venture capitalist) confidence, which feeds yet more positive energy into the markets.

Financial Market Volatility

The above S&P chart smoothed out all the volatility to illustrate the overall steady climb in stock market values since 2009. Below is a snapshot of the volatility that occurred from autumn 2015 to late summer 2016 (with an allusion to the big jump that has occurred in 2017 YTD): stock markets plunged in September 2015 to recover fully by November, then plunged again in January 2016 to recover again by April. Then came a smaller response to the Brexit vote. This volatility affected IPOs, venture capitalist confidence (to continue funding start-ups), hiring, and real estate markets, especially of more expensive homes. One local, respected economist predicted in late 2015 that soon “there would be blood in the streets of San Francisco” from a collapse in high-tech and housing booms. Then financial and real estate markets, hiring, VC and consumer confidence bounced back dramatically in 2017, and he revised his estimate for streets filled with blood to 2019 or 2020.

Residential Rents

Again, this chart is for San Francisco, but similar trends occurred throughout the Bay Area. Soaring population and employment without a concomitant increase in housing supply made rents soar to the highest in the nation. Extremely high rents (with no tax, equity accrual or appreciation benefits) make many people think of buying as a better financial alternative. Rents declined from a peak in 2015 due to increased supply (new apartment buildings coming on market) and a softening in high-tech hiring through mid-2016. In 2017, there are some preliminary signs of a recovery, or at least that the decline in rent rates has, for the time being, stopped.

Rent Trends Chart: Selected Bay Area Counties

 Supply: New Listings Coming on Market (SF)

A very significant change has occurred in real estate markets locally and nationally: Homeowners are selling their homes much less frequently. There has been a general decrease in population mobility (people moving for new jobs), a substantial increase in the average age of homeowners (older people move less often than younger), and an increase in owners renting out homes instead of selling (helped by the big drop in interest rates and the big jump in rents). If demand increases for all the reasons mentioned earlier – demographic shifts, new wealth, new jobs, more confidence – but the number of homes being put on the market declines, that creates the pressure that leads to higher home prices.

Months Supply of Inventory (MSI)

MSI is a statistic that takes into account both buyer demand and the supply of homes available to purchase. The lower the MSI, the greater the competitive pressure on prices: Very low MSI figures, such as we have been seeing around the Bay Area in almost all market segments, means that there are too many buyers for the number of homes on the market. This leads buyers to bid against one another: Nothing leads to higher prices more quickly than this dynamic.

Median Home Price Trends

This chart is for SF, but the entire Bay Area has seen similar upward swings in home prices since 2012. In many ways, this chart is the result of everything that has been illustrated in previous charts in this report. However, it should be noted that the very considerable appreciation in home values has also increased the wealth of much of the population, which feeds back into the financial and psychological loops.

Appreciation Trends Chart: Bay Area Counties

Real Estate Appreciation Cycles

This very simplified, smoothed-out graph illustrates the percentage ups and downs in home prices over the past 30+ years per the S&P Case-Shiller Home Price Index for “high-price-tier” homes in the Bay Area: High-price-tier homes predominate in most of SF, Silicon Valley and Marin County, as well as in enclaves in other counties. Like other financial markets, real estate markets are subject to cycles. However, they are hard to predict because there is no hard and fast rule as to how long cycles will run. Booms can last longer than expected, or suddenly get a second wind, and downturns can come out of nowhere. There are so many churning, interactive economic, political and ecological factors in the mix nowadays, running from local events in the Bay Area to developments in China, Europe, North Korea and Middle East.

Bay Area vs. National Appreciation Trends

What has happened home prices in the Bay Area has also been occurring generally in the country, though our high-tech/bio-tech/fin-tech boom has certainly goosed appreciation here. However, it is interesting to see, that for the most part, the trends are quite similar over recent decades, with divergences for the 1989 earthquake, the dotcom boom and bust, and the most recent recovery. It will be interesting to see if the trend lines converge again as has happened in the past.

San Francisco Housing Affordability

All the factors that have pushed up home prices have pushed down affordability. San Francisco and San Mateo Counties have the lowest housing affordability percentages in the state (and maybe the nation), but affordability has been rapidly declining around the Bay Area. When affordability gets too low, it starts to throw a wrench in some of the other components, like population and hiring. People and companies start moving away, poverty increases, start-ups start up elsewhere, rents begin to soften, and so on throughout the economic ecosystem. Housing affordability may be the biggest social, political and economic issue facing the Bay Area right now.

Housing Affordability Chart: Selected Bay Area Counties

With statistics, one is almost always looking in the rear-view mirror, and, as anyone reading the news during the past year knows, the future is an unknown country. As they say in the standard disclaimer, past performance is no guarantee of future results.

All our many Bay Area real estate analyses can be found here: Paragon Market Reports

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

Luxury HOUSE Market Update for San Francisco

The autumn selling season is a big one for the San Francisco luxury house market: Last September saw a record-breaking spike in new listings hitting the market, leading to a similar spike in October sales. It will be a couple months before we begin to get definitive statistics on listing and sales activity in September and October 2017, but in the meantime we can review the market conditions and trends as they have developed over recent years. This report will pay particular attention to the different neighborhood markets within SF.

We typically use $3,000,000 as the price threshold for the luxury house market in San Francisco: That approximately defines the top 10% of the market. The ultra-luxury segment starts at $5 million, which constitutes the top 2.5% of sales. Of course, what one gets in the different neighborhoods for the same price can vary dramatically: A fixer-upper in Presidio Heights may go for the same price as a large, gracious mansion in St. Francis Wood in move-in condition. In real estate, the devil is always in the details.

Link to our update on the SF luxury CONDO market
All Paragon reports can be found here

Overview: Listing & Sales Activity

As of mid-month, 29 new luxury house listings priced at $3m+ have come on the SF market since the beginning of September, so it looks like it may be another big month for new listing activity. Of those 29, 4 had already accepted offers by 9/15/17.

If you wish, you may skip our summary and jump to additional graphed analyses further below.

MARKET SUMMARY

The luxury real estate market is impacted by a number of factors: positively, by improvement in general economic conditions and confidence, highly-paid employment and population growth, and especially, by the creation of new wealth in large quantities. All these elements were dynamically present in the Bay Area from 2012 through mid-2015. Then significant economic and political volatility put a damper on luxury home sales: Chinese stock market turmoil, the crash in oil prices, Brexit, large U.S. stock market swings, as well as an apparent cooling in our high-tech boom, all injected uncertainty into financial and our luxury real estate markets. Furthermore, Bay Area high-tech IPOs, which had created a stupendous amount of new wealth since 2011, basically dried up – and newly rich or further enrichened buyers have played a big role in demand.

These changes in the economic environment caused the SF luxury home market to cool in autumn 2015. Generally speaking, the segment most affected was the market for re-sale luxury condos, particularly in those districts where big, new-construction, projects are concentrated. There has been very little new, luxury house construction in the city – only about 8 to 10 per year built since 2000 (as opposed to many thousands of new condos), which is one reason the SF house segment has generally been stronger than that for condos.

Then in October 2016, after a sudden huge surge in listings, SF luxury house sales hit a new high in sales volume, and in June 2017, the luxury condo market suddenly hit a new high as well. However, neither segment is as strong, as measured by standard market metrics, as it was during the 2014 to mid-2015 peak of market heat. Many of the statistics in this report reflect a similar trend: The market getting increasingly hotter 2012 through mid-2015, cooling from autumn 2015 through most of 2016 (during substantial financial market and political volatility), and then strengthening again in late 2016 and 2017. Now we are waiting to see how the autumn 2017 luxury home market shakes out.

Overview: Dollar per Square Foot Values

Overview: Average Days on Market

Overview: Months Supply of Inventory

San Francisco Luxury House Market
by Neighborhood & District

Median Sales Prices & Avg. Dollar per Square
Foot Values by District

Luxury House Listings & Sales Volumes by District

In the past 6 years, the Noe, Eureka & Cole Valleys district has seen very considerable growth in the luxury house segment. To a large degree, this shift began in the last few years of the previous millennium, when the dotcom boom suddenly erupted. Among other issues, the recent high-tech booms have somewhat changed the demographics of Bay Area wealth and of the SF luxury home buyer, and the lower-key neighborhood ambiance many younger, newly affluent buyers prefer. Another factor is that this district is much closer to highways south to the peninsula and the head offices of many high-tech giants than the wealthy northern neighborhoods. All in all, it constitutes a totally different choice from neighborhoods like Pacific Heights and Russian Hill, and from the newer, luxury high-rise condos of South Beach-SoMa, each of which appeals to a different, but substantial segment of buyers.

Top Luxury House Districts: Months Supply of Inventory

Top Luxury House Districts: % of Sales Accepting Offers within 30 Days

Top Luxury House Districts: % of Sales over List Price

Top Luxury House Districts: Listings Taken Off Market without Selling

Ultra-Luxury House Sales in San Francisco
The Top 2.5% of Sales, $5m+

The most expensive house sales are clustered in the Pacific & Presidio Heights district, with typically a handful-plus sales each in the Russian, Nob & Telegraph Hills district and the Noe, Eureka & Cole Valleys district (which includes Ashbury Heights and Buena Vista Park). Every now and then a huge Alamo Square mansion will sell in this price range. Russian Hill and Sea Cliff have very few house sales in any given year, but they sometimes sell for prices well over $10m.

Please let us know if you have questions or we can be of assistance in any other way.

Link to our update on the SF luxury CONDO market
Our complete SF luxury real estate report
All Paragon Bay Area market reports

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

Luxury Condo Market Report for San Francisco

The autumn selling season is a big one for the San Francisco luxury homes market: There is usually a very significant spike in activity between Labor Day and the beginning of the mid-winter slowdown in mid-November. It will be a couple months before we begin to get definitive statistics on listing and sales activity in September and October, but in the meantime we can review the market conditions and trends as they have developed over recent years. This report will pay particular attention to the different neighborhood markets within SF.

We usually use $1,850,000 as the price threshold for the luxury condo, co-op and TIC market in San Francisco: That approximately defines the top 10% of the market. The ultra-luxury segment starts at $3 million, which constitutes the top 2.5% of sales. Of course, what one gets in the different neighborhoods for the same price can vary dramatically: The city has an enormous range in locations, architectural styles, views and amenities.

All our Paragon reports can be found here

Condo, Co-op & TIC Sales over $5m
2017 YTD SF MLS Sales

Overview: Listing & Sales Activity

As of mid-month, 49 new luxury condo, co-op and TIC listings have come on the SF market since the beginning of September, so it looks like it may be a record-breaking month for new listing activity.

If you wish, you may skip our summary and jump to additional graphed analyses further below.

MARKET SUMMARY

The luxury real estate market is impacted by a number of factors: positively, by improvement in general economic conditions and confidence, highly-paid employment and population growth, foreign buyers, and especially, by the creation of new wealth in large quantities. All these elements were dynamically present in the Bay Area from 2012 through mid-2015. Then significant economic and political volatility put a damper on the market: Chinese stock market turmoil, the crash in oil prices, Brexit, the U.S. presidential election, as well as an apparent cooling in our high-tech boom, all injected uncertainty into financial markets and our local luxury real estate market from late summer 2015 to late autumn 2016. Furthermore, Bay Area high-tech IPOs, which had created a stupendous amount of new wealth since 2011, basically dried up during this period – and newly rich or substantially enrichened buyers had played a big role in demand.

Generally speaking, most affected was the market for re-sale luxury condos, particularly in those neighborhoods where big, new-construction projects are concentrated and dramatically increasing supply. It is hard to get definitive data on new-project sales activity, but it is believed to have softened as well with the overall jump in listings, all competing for the same buyers.

However, in June 2017, the SF luxury condo market suddenly hit a new high in sales volume. This accompanied feverish spring real estate markets around the Bay Area, though the more affordable segments were most frenzied, and house markets somewhat hotter than condo markets. Consumer confidence climbed, interest rates remained low and the stock market soared to new heights.

The biggest shift in the luxury condo market has been the dramatic year-over-year drop in sales reported to MLS in the greater South Beach-SoMa district, even as listing inventory there has hit new highs. As illustrated below, by virtually every market indicator – months supply of inventory, average days on market, and others – it is the softest luxury condo market in the city. This is the area where many big, new projects continue to come on market, and, to some degree, they are probably cannibalizing MLS sales as they aggressively compete with the resale market. This is also the district where the unfortunate issues at the Millennium Tower (slight sinking and tilting; multiple lawsuits) are being extensively reported upon. On the other hand, the high-end condos that do sell in this district still often achieve the highest dollar per square foot values in the city.

The Pacific Heights-Marina district and the Noe, Eureka (Castro) & Cole Valleys district have much stronger supply and demand statistics in their high-end condo markets, with the greater Russian & Nob Hills district a bit cooler.

Overview Dollar per Square Foot Analyses

Most Expensive Luxury Condo, Co-op & TIC Buildings
in San Francisco, by Median Dollar per Square Foot

Each of these buildings had 7 to 23 sales during the period measured.

San Francisco Luxury CONDO, CO-OP & TIC Market
by Top Neighborhoods & Districts

Each Realtor district delineated on the map above and the charts below contains a number of neighborhoods. For example, Realtor District 9 contains South Beach, SoMa, Mission Bay, Yerba Buena, Potrero Hill and the Mission (as far as luxury condo sales go). Sometimes the chart legends will mention different neighborhoods within the district, but it is always referencing the same District 9.

Top Luxury Condo Districts: Average Dollar per Square Foot Values

The highest luxury dollar per square foot values are achieved in the greater South Beach-SoMa district – almost all high-rises built within the last 20 years or so – and in the swath of much older, high-prestige neighborhoods, such as Pacific Heights and Russian Hill, running across the northern side of the city.

Top Luxury Condo Districts: Listing & Sales Volumes

The South Beach-SoMa district has by far the highest number of active luxury condo listings, and that does not include most of the new-project listings, which are typically not entered into MLS. So supply, or over-supply, is a major issue there in the market dynamic.

This next chart illustrates the abrupt plunge in sales over the past 15 months in South Beach-SoMa (tying neatly into when the Millennium problems started getting press coverage). The Pacific Heights-Marina district is now the top district for sales, followed by the Russian & Nob Hills area. Sales in the two relative “upstarts” in the luxury condo market – the Noe, Eureka and Cole Valleys district and the Hayes Valley-NoPa-Alama Square district – have been significantly growing in recent years.

Top Luxury Condo Districts: Months Supply of Inventory

South Beach-SoMa now has a very high months supply of inventory, while Pacific Heights-Marina and Noe, Eureka and Cole Valleys have very low MSI figures. Russian and Nob Hills have somewhat higher but still relatively low MSI figures in recent months. The lower the MSI, the stronger the demand as compared to the supply of listings available to purchase.

High MSI in South Beach-SoMa does not imply that luxury condos are not selling there, but it does mean that listings generally have to stand out as good values, i.e. priced correctly as well as prepared and marketed properly, to seize the attention of buyers confronted with so many options.

Top Luxury Condo Districts: Average days on Market

The same dynamic seen in months supply of inventory is replicated in the statistic average-days-on-market. Indeed, the dynamic is consistently illustrated, to a greater or lesser degree, in all the following charts.

Top Luxury Condo Districts: % of Sales Accepting Offers within 30 Days
The higher the percentage, the stronger the market.

Top Luxury Condo Districts: % of Sales Selling over List Price
The higher the percentage, the stronger the market.

Generally speaking, the higher the overbidding percentage, the more buyers are competing to win listings. However, it is also not unusual in recent years for lower priced areas to have higher overbidding percentages, and the Noe, Eureka and Cole Valleys district is distinctly less expensive than the other 3 districts illustrated on the chart below.

Top Luxury Condo Districts: Listings Taken Off Market without Selling
The higher the number, in relation to overall district
listing and sales numbers, the softer the market.

Ultra-Luxury Condo & Co-op Sales in San Francisco
The Top 2.5% of Sales, $3m+

As illustrated in the second chart below, sales at the highest end of the luxury condo and co-op market peaked in spring 2015, while the number of active MLS listings have continued to rapidly climb to peak this past June, so the supply and demand dynamics in this segment have changed considerably in the past 2+ years. This ties in with the financial market turmoil and plunge in local IPO activity that began in late summer 2015. At the same time, some of the recently built as well as upcoming condo projects are aggressively targeting this very expensive niche, adding further to supply.

This market segment targets a very small pool of very affluent buyers and it is not unusual that its statistics for months supply of inventory and average days on market to be appreciably above those in the general market. However, since spring 2015, both metrics have climbed much higher, to an average of 8.5 months of inventory and an average 55 days on market over the past year. This market has been clearly and significantly tilting to the advantage of buyers.

As seen earlier in the list of biggest sales and the chart showing the most expensive buildings, the ultra-luxury segment is totally dominated by neighborhoods such as Pacific Heights, Russian Hill, Nob Hill and South Beach-SoMa.

Please let us know if you have questions or we can be of assistance in any other way.

Our complete SF luxury real estate report (including luxury houses)
All Paragon Bay Area market reports

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 Hot Autumn Market in San Francisco?

Generally speaking, late summer market dynamics (or, for that matter, during the mid-winter doldrums) are not of great significance and do not tell us much about where the market is heading. September, however, is usually the single month with the greatest number of new listings hitting the market in San Francisco, and that surge fuels sales through mid-November, when activity begins to plunge. The coming two months will be the next major indicator: Will the SF market continue to maintain the intense high-demand, low-supply heat of this past spring, or will it cool? While the entire market is affected by seasonality, the luxury home segment is fiercely so, and the next couple months will be the peak selling period for high-end homes until spring 2018 rolls around.

City-Wide Home Appreciation Trends since 2005
Median Sales Prices & Average Dollar per Square Foot Values

As of September 1, the 3-month-rolling median sales price was $1,418,000 for SF houses, and $1,160,000 for condos. The average dollar per square foot value was $907 for houses and $1056 for condos.

San Francisco Median Home Sales Price Trends

San Francisco Average Dollar per Square Foot Trends

San Francisco Neighborhood Appreciation Rates
2011 to 2017 YTD, Median Sales Price Change

Median sales prices are not perfect indicators of changes in values for specific homes: They can be and often are affected by factors other than changes in fair market value, and shorter-term anomalies are not uncommon. What is certainly true is that every part of the city has seen tremendous appreciation since the recovery began in 2012, however the percentages on the charts below should be considered very approximate indications of the scale of change.

These charts delineate 2011 and 2017 YTD median sales prices by neighborhood, as well as the percentage change between the two. The 2 charts on house appreciation are followed by 2 on condo appreciation. If you wish information on a neighborhood not included in the charts below, please let us know.

SF HOUSE Median Sales Price Appreciation Rates

SF Neighborhood House Price Appreciation

NOTE: A perfect example of how median price changes can misrepresent changes in fair market value can be seen above: Typically, Noe Valley and Eureka Valley (Castro) have very similar median house prices, but in 2017 YTD, the Eureka Valley median price unexpectedly jumped by an astonishing $500,000 (23%), putting it far above Noe, and giving it a much higher overall appreciation rate. However, the average size of houses sold in Eureka Valley so far in 2017 suddenly jumped by 22% from 2016: That is, its houses did not just suddenly and inexplicably have a tremendous jump in value: the average size of homes sold changed, probably temporarily. Monthly median price changes in particular, trumpeted everywhere in the media as vitally important, are often unreliable due to seasonality and the small size of the data set.

SF Neighborhood Home Price Appreciation

SF CONDO Median Sales Price Appreciation Rates

Thousands of newly constructed condos, which typically sell for higher prices than resale condos, have hit the market in recent years, which means year-over-year comparisons are not always apples to apples. Generally speaking, comparable-condo appreciation rates have been well below house appreciation rates since 2015, because of the difference in the supply available to purchase.

San Francisco Neighborhood Condo Price Appreciation

SF Neighborhood Condo Price Appreciation

The September Rush of New Listings
General Market

San Francisco New Listings

Luxury Home Market

For some reason, September 2016 saw a stupendous rush of luxury home listings coming on market, which among other effects led to the highest monthly number of luxury house sales ever in October 2016. (As an aside, luxury condo and co-op sales hit their highest sales volume this past June.)

San Francisco New Luxury Home Listings

Where to Look in Your Price Range

In August, we updated our complete series of charts delineating where one is most likely to find a home in a specific price range. Below are 2 of the charts, and the entire series can be found here: SF Neighborhood Affordability.

San Francisco Condo Prices by Neighborhood

San Francisco House Prices by Neighborhood

National Housing Affordability

This next chart illustrates home affordability for selected metro areas across the country as calculated by the National Association of Realtors. The 7 Bay Area counties, in our 2 metro areas, are the least affordable in the nation – not the happiest of distinctions, except for those planning to sell and move out of the area.

U.S. Metro Area Housing Affordability

San Francisco, California & the United States

The appreciation of home prices in San Francisco since 2011 has out-performed overall state and national markets by a substantial margin.

San Francisco, California and US Home Price Trends

County House Markets

Since San Francisco is considered the big city in the Bay Area (though San Jose is actually larger), it seems counter-intuitive that its house market is one of the smallest, but this is a major part of its ruling dynamic: Very little supply compared to intense demand. Owners in the city (and the nation) are getting older, and selling their houses ever more infrequently. And virtually no new houses are being built within SF itself.

SF Bay Area House Markets

Condo sales significantly outnumber house sales in SF, and the supply of condos available to purchase has surged with new project construction. This has made that market segment somewhat less heated; condo owners also tend to sell more frequently than house owners. However, the condo market in the city is much more expensive than in other counties.

Ultra-Luxury House Sales in San Francisco
Houses Selling for $5 Million & Above

A quick look at the very highest end of the SF market. Though other districts, such as the greater Noe-Eureka-Cole Valleys district, have increasingly surged into the luxury home segment, when it comes to the realm of the really big, most expensive houses, the district comprised of Pacific & Presidio Heights, Cow Hollow and Marina dominates with 75% of sales. House sales there can exceed $30m, though that is still very rare.

Most expensive houses in San Francisco

Bay Area Home Price Appreciation
per the S&P CoreLogic Case-Shiller Index

Earlier in this report, it was mentioned that median price changes can sometimes be unreliable as indicators of actual appreciation. However, the S&P Case-Shiller Home Price Index measures appreciation using its own special algorithm tracking resales of the same home, and it does not use median sales prices. This first chart below, based on Case-Shiller, is a simplified, smoothed-out look at the up and down cycles over the past 33 years in the higher end of the Bay Area real estate market, which predominates in most of the city, Marin, San Mateo and areas like Piedmont, Diablo Valley and Lamorinda. Because it covers 5 counties, it merges the differences between their separate markets into a single trend line.

San Francisco Bay Area Home Price Cycles

This second Case-Shiller chart illustrates how homes in different price segments around the Bay Area have recently been appreciating at considerably different rates. C-S divides all the Bay Area house sales into thirds by number of sales: low-, mid- and high-price. As illustrated in the lower green line, the higher-priced segment went flat in appreciation in 2016, but then jumped back to life in 2017. The most affordable price segment (top blue line) has been experiencing the highest pressure of buyer demand and competitive bidding, and since April 2016, has out-appreciated the most expensive segment, 12.4% to 4.3%, i.e. almost triple the rate of increase. The middle price segment (gold line) has been in between, appreciating by 7.8%.

These dynamics are generally true within each county, as buyers, somewhat desperately, search for homes they can still afford, in the area they wish to live.

The numbers on this chart all refer to a January 2000 home price of 100. Thus 262 signifies a price 162% higher than in 2000.

Case-Shiller SF Home Price Trends by Price Tier

Months Supply of Inventory (MSI)

The lower the months supply of inventory, the higher the demand as compared to the supply of homes available to purchase, i.e. lower MSI equals a hotter market. The entire Bay Area has been experiencing very, very low MSI figures recently, with San Mateo at rock bottom. (Its median house sales price has just recently been exceeding the median price in the city.) Alameda and Contra Costa Counties, generally offering considerably more affordable home prices than Silicon Valley, San Francisco and Marin are also at extreme lows.

Within SF itself, the MSI for houses alone, and especially in the more affordable neighborhoods, is substantially lower than the MSI for condos, though both have been very low since spring began.

SF Bay Area Months Supply of Inventory

Mortgage Interest Rates

Since the election, interest rates have seen a wild ride, first up and then down. As of the end of August, rates hit their lowest point so far in 2017, a significant financial advantage for buyers.

Mortgage Interest Rate Trends

Please let us know if you have questions or we can be of assistance in any other way. Information on neighborhoods not included in this report is readily available.

All our many Bay Area real estate analyses can be found here: Paragon Market Reports

Over the past 12 months, Paragon sold more San Francisco residential and multi-unit residential real estate than any other brokerage.

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

Bay Area Home Prices, Incomes & Demographics

Which counties are most expensive or most affordable, have the highest overbidding and appreciation rates? Which are healthiest, most educated, have the highest incomes or worst poverty percentages? What cities have the biggest, most expensive homes? And where do Bay Area residents come from?

August 2017 Report

Median House Price Appreciation since 1990

Appreciation trend lines are largely similar across the Bay Area, but some counties have outperformed others. Solano is still well below its previous peak price ten years ago, and Sonoma and Napa are just now coming back up to their previous highs. Most of the other counties have exceeded their 2006-2007 peaks, sometimes by very wide margins. As will be explored further below, proximity to the heart of the high-tech boom has been one of the major factors in recent appreciation rates. Still, it is worth noting that in the past year and a half, appreciation rates in less expensive towns and neighborhoods have typically been higher than in more expensive areas, an indication of the sometimes desperate search for affordable housing – however that might be defined within the context of any given market.

Average Dollar per Square Foot Values

The Most Expensive Places in the Bay Area

By clicking on map, you can also access our full collection of home price maps delineating current city home prices throughout the Bay Area.

Note: Diablo in Contra Costa with 6 sales at a median price of $2.73m, and Penngrove in Sonoma with 13 sales at a median price of $919,500, had higher prices than Alamo and Healdsburg in the period measured, but because of their very low number of sales, we highlighted the larger markets on the map above.

Annual Home Price Appreciation Rates (since 1996 and 2011)

This table below illustrates annual compound appreciation trends going back to the post-recession recovery that began around 1995, and also from the current post-2008-crash recovery which started in 2012. This is based upon someone purchasing their home all cash: If one had purchased with a 20% down payment, then the annual compound rate of appreciation of that cash investment would be much, much higher.

There are 3 big factors behind local appreciation rates: 1) the emergence of the Bay Area in the past 20 years as an international, economic powerhouse, which generally lifted all markets, 2) how close the specific market is to the white-hot centers of the high-tech boom (SF and Silicon Valley), and, 3) how badly the county was hammered by the foreclosure crisis, since those markets whose prices fell 50% or more to unnatural lows bounced back more on a percentage basis than those counties less affected by the subprime catastrophe.

SF has had the highest compound annual rate since 1996: It is the epicenter of the Bay Area high-tech, bio-tech and fin-tech economic miracle. But Oakland soars above all other markets in appreciation since 2011, because of a combination of factors: It is the closest affordable alternative to much higher SF prices; it is a lively, multi-cultural urban area appealing to high-tech workers; and its housing prices dropped an astounding 60% after the 2008 crash, which set them up to fly upward once the heavy anchor of distressed property sales was removed.

Having complete confidence in our ability to predict what will happen in the past, we now recommend that all our clients go back in time to 1995 or 2011 and buy as many homes as possible.

Economic & Demographic Factors

Underpinning the Bay Area real estate market and general economy are often amazing, but sometimes worrisome statistics. Below are tables and charts ranking counties, zip codes and cities by a variety of parameters. The Bay Area ranks extremely high in income, education, employment rates and general health factors, often grabbing almost all the top rankings, but it is also unhappily high in income inequality, housing unaffordability and poverty.

Bay Area City & Zip Code Income Rankings

Atherton has the highest median household income and the highest median income per worker in the state, followed by a handful of other nearby, highly affluent, Silicon Valley communities. In San Francisco, South Beach and the Presidio zip codes make the top rankings, but note that several of the most expensive neighborhoods in SF are in zip codes that mix highly affluent with less affluent areas (such as Pacific Heights and Western Addition, or Russian Hill and the Tenderloin). SF also has much higher percentages of residents who are tenants, and generally speaking, renters have lower incomes than homeowners.

In Marin County, Belvedere, Tiburon, Kentfield and Mill Valley make the lists; in Contra Costa, the Diablo Valley & Lamorinda communities of Blackhawk, Alamo, Lafayette, Orinda and Moraga rank highest; in Alameda, Piedmont is in the top 10 cities for median worker earnings.

Bay Area zip codes utterly dominate the CA rankings for higher education, taking 14 of the top 15 spots out of about 2600 zip codes. Unsurprisingly, high positions in income usually correlate with the same in education (and having UC Berkeley and Stanford in our midst was a help): Top Zip Codes for Higher Education

If you wish to explore Bay Area rankings by other criteria: Top 25 Rankings in California

Employment & Unemployment

High-tech employment in SF & San Mateo Counties illustrates broader trends in hiring: massive growth and some recent cooling.

Unemployment rates are bumping against historic lows.

Bay Area Poverty Rates & Housing Affordability

Beneath surging affluence, significant percentages of county populations are living in poverty. High housing costs are a big factor.

Housing affordability percentages are approaching historic lows in some counties,
a huge Bay Area political, economic and social issue. If interest rates start to go up
considerably, the picture will worsen, but so far they have remained quite low.Link to our mortgage interest rate chart
Link to our full report on Bay Area housing affordability

Bay Area Luxury Home Markets

Santa Clara is by far the biggest luxury home market in the Bay Area by the number of homes selling for $2m+, but then its overall market is also the largest, more than 2½ times larger than that of San Francisco. Average dollar per square foot values for luxury house sales are surprisingly similar across Santa Clara, San Mateo and San Francisco, with Marin County just a notch lower. Moving further out, one gets considerably more luxury house for the money.

Generally speaking, SF luxury condos and co-ops command the highest dollar per square foot values in the Bay Area: Think fabulous units on high floors of prestige, ultra-amenity buildings with absolutely staggering views.

Calculating luxury markets by the top 10% of sales, the thresholds for the luxury designation vary widely: For example, in Sonoma, the threshold is about $1,125,000 for houses, while in San Francisco, it is about $3m.

Other Angles on Bay Area Market Dynamics
Bay Area Condo Markets

Overbidding

Average Days on Market

Bay Area Market Sizes

Bay Area Rents

Rents are even more sensitive to hiring trends than home prices.Link to our apartment building market report

Additional Demographic Snapshots

The foundation of the Bay Area economy is a richly multi-cultural society constantly infused by many of the best and brightest from around the world.

S&P Case-Shiller Home Price Index for the San Francisco Bay Area

Case-Shiller charts are complicated, which is why we have put them at the end of the report, but they do give perspectives on home price appreciation by price segment. The different price tiers had bubbles, crashes and recoveries of very different magnitudes, with the low-price tier having an extravagantly enormous subprime bubble and a disastrous crash, while more costly home tiers having lesser bubbles and crashes. The end result now is that all three tiers are relatively close in their current prices as compared to 2000 values, but are in very different circumstances when compared to their 2006-2007 bubble peaks. Around the Bay Area, generally speaking, San Francisco, San Mateo, Marin, Santa Clara and Diablo Valley-Lamorinda have high-price tier markets with smaller mid-price segments; Alameda, Sonoma, Napa, Solano and non-central Contra Costa have mixes of low-price and mid-price markets (though there are, of course, pockets of high-price homes as well).

All C-S data points refer to a January 2000 home price of 100. Thus a reading of 250 signifies a price 150% higher than in January 2000.

More affordable homes have been appreciating much more quickly in the past 15 months than more expensive price segments.

Link to our full S&P Case-Shiller Index Report

All our reports, including dedicated analyses of the SF luxury home segment, and of the Marin, Sonoma and Diablo Valley-Lamorinda markets, can be found here: Market Trends & Analysis

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 can be and often are affected by other factors besides changes in fair market value, and longer term trends are much more meaningful than short-term. It is impossible to know how median prices apply to any particular home without a specific comparative market analysis. All numbers in this report are to be considered approximate.

© 2017 Paragon Real Estate Group

San Francisco Real Estate: The Paragon Mid-Year Report

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.

A Very Hot Spring
SF Median Sales Price Appreciation
by Quarter since 2012

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

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.

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.

SF Neighborhood Home Prices & Trends
House & Condo Prices by Bedroom Count

Our full collection of home price tables: Median Sales Prices by Bedroom Count

Appreciation Trends since 2005 for Selected San Francisco Neighborhoods

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. Or simply reply to this email if you would like information on a neighborhood or district not included above.

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.

Please let us know if you have questions or we can be of assistance in any other way.

All our Bay Area real estate analyses can be found here: Paragon Market Reports

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

San Francisco Bay Area Apartment Building Market

Before jumping into the specific financial metrics pertaining to the market itself, below is a review of some of the major economic context issues which underpin the market: rent rates, new construction and employment.

Bay Area Rent Rate Trends

San Francisco still has the highest rents in the nation (the light blue columns in the first 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. 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.

New Construction in San Francisco

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.

With a lot of help from the recent San Francisco Business Times analysis and investigation of the SF Planning Department Pipeline report, we put together the two charts above. As far as the SF apartment building market is concerned, the big issue is the continued construction of new rental units, how that is affecting the supply and demand dynamic, and rent rates. 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. This surge of supply is a major factor in the recent decline in SF rents illustrated at the top of this report.

Note that projects are continually being added to the pipeline, or their plans significantly changed, or even abandoned. Some of the big projects noted are very long-term, and economic and political shifts can dramatically affect future plans, sometimes very quickly.

Employment Trends

Ted Egan, chief economist for San Francisco, put it succinctly, Since 2016, a slowdown in tech employment has been driving a slowdown in total employment. This has been occurring both in San Francisco (first chart above) and in the Bay Area (second chart). Adding substantial new apartment construction to a slowdown in hiring is something of a double whammy putting downward pressure on rents. However, in the first half of 2016, employment numbers also fell, only to surge back into positive territory in the second half. Much is currently going on in the high-tech economy and it is not wise to jump to definitive conclusions or predictions based on short-term trends.

Median Sales Price Trends by County

This report usually separates out the 2-4 unit and the 5+ unit apartment building markets, since they have somewhat different dynamics and valuation metrics.

Generally speaking, across a variety of statistical measures, there appears to be some cooling in the 5+ market in SF from the feverish markets of recent years. Alameda, where prices are much lower, remains quite hot. The 2-4 unit market, which typically follows the general residential home market more closely, saw strong buyer demand this past spring. (Residential markets hit new highs in median home sales prices around the Bay Area.)

Note that median prices and average dollar per square foot values can be affected by other factors besides changes in fair market value, such as periodic, distinct shifts in inventory available to buy. Because of the relatively low number of sales in Marin or the absence of critical financial data in Alameda, some of the year-to-date analyses were not performed for those counties.

Average Dollar per Square Foot Trends

The analyses linked to below, from our previous quarterly report, review values by San Francisco neighborhood submarkets:

Chart: Median Sales Prices by City District
Chart: Average Dollar per Sq.Ft. Values by City District

San Francisco 5+ Unit Market Dynamics
Cap Rates, Gross Rent Multiples & Price per Unit

By all three of these measures, the heat of the SF 5+ unit apartment building market ticked down in the first half of 2017. However the changes are relatively small and end of the year data will be more conclusive.

These analyses below, from our previous quarterly report, illustrate these statistics by city district:

Chart: Cap Rates by City District
Chart: Gross Rent Multiples by City District
Chart: Price per Unit Values by City District

San Francisco Sales Breakdowns
12 Months Sales by Building Size & Price Segment

Interest Rates

Besides the enormous overall increase in rents since the end of the recession, the other major factor underpinning the investment real estate market has been the extremely low interest rates. This chart graphs residential mortgage rates, which don’t apply perfectly to rental properties, but which indicates the trends that apply to both markets. No one has consistently predicted interest rate movements correctly in the past 10 years, but if significant increases do occur it will certainly affect the financial scenario for the purchase and ownership of residential income properties.

Supply & Demand

The inventory of 5+ listings on the SF market has increased a little over the past year, but not significantly. However, as charted below, Q2 saw a sudden spike in listings going into contract. Q2 5+ numbers are as follows: 43 new MLS listings, 91 total MLS listings on the market, 56 went under contract, and 43 closed escrow.

The 2-4 unit market in the city, which we did not chart, saw 178 new MLS listings come on market in Q2, a total listing inventory of just under 300, 131 listings went under contract, and 109 closed escrow.


Q2 2017 Sales of SF 5+ Unit Apartment Buildings

San Francisco is a unique apartment building market: the buildings are smaller and older than in most places, built in a wide range of architectural styles. The great majority of the market is under rent control, which makes upside rental-income potential a big component of valuation, even if it is unknown when that potential might be realized. Furthermore, the units are typically unlike those in suburban garden-apartment complexes, and within the city the variety in units is enormous, from large, gracious, full-floor flats in Russian Hill and Cole Valley, to studio apartments in Tenderloin brick buildings.

In real estate, the devil is always in the details: If you are interested in further data pertaining to any of the above sales, or regarding properties currently on the market, please contact me.

IRC 1031 tax exchange endangered? Numerous recent news articles in the likes of The Wall Street Journal, Washington Post and Forbes have mentioned the possibility that the current congress is eyeing the possibility of doing away with the 1031 tax deferred exchange, which would have significant, negative ramifications for real estate investors: The tax deferred exchange plays a critical role in sales volume and in portfolio development. Of course, there has been talk of this on and off for years, and has always come to nothing. How serious the threat is now, we cannot say, though it seems an odd change to occur under a President who is a real estate mogul.

Broker Performance: Residential Multi-Unit Property Sales

According to Broker Metrics, which crunches MLS sales data, whether looking at the market in San Francisco or for all of San Francisco, Alameda and Marin counties, Paragon closes more residential income property sales than any other brokerage.

These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities: This is especially true for multi-unit properties, with the enormous range of property types, sizes, conditions, circumstances, qualities and locations. Cap rate and gross rent multiple analysis relies upon accurate data (instead of scheduled or projected income and expense numbers) being provided by listing agents, which is not always the case. Many Alameda County sales do not report cap rates, so any calculation in this report is based only upon those that did. Marin County often has too few sales to generate meaningful statistics. A fair proportion of investment property sales are not reported to MLS, which sometimes limits our ability for more comprehensive data analysis. When we identify outlier sales that we believe distort the statistics, these sales are typically deleted from the analysis. For all these reasons, any numbers in this report should be considered approximate.

© 2017 Paragon Commercial Brokerage