More signs of an extraordinary market: 90% of listings sold in April sold without any price reductions, at an average sales price 7.5% over list price. Huge demand is chasing a too-small supply of homes for sale.
The San Francisco Homes Market
Paragon’s May 2013 Snapshot
April’s market was basically more of the same of what we’ve been seeing for the last 12-16 months in San Francisco. Virtually all of our statistics are at historic or near-historic readings: number of homes for sale way down, months supply of inventory way down, percentage of listings accepting offers way up, days on market way down — all leading to overall house and condo median and average prices climbing to perhaps the highest points they’ve ever reached. We will add the usual caveat that no one or two months of data should be considered definitive until confirmed over the longer term: though there is no doubt that San Francisco is experiencing a red hot market, prices can fluctuate for various reasons, including seasonality.
We will have to wait and see if the current heights reached in home prices are the new baseline, a springtime blip, or a way station to even higher real estate values.
The small decline in the Index reading from December 2012 to January/February 2013 is due to seasonal market factors, not a decline in values, and occurs every year. Generally speaking, January and February sales reflect offers accepted in the holiday season period from Thanksgiving to early January, and since the higher end of the market tends to check out for this period, sales prices in the first 2 months of the year are typically lower. Based on the heat of the market since the year began, we expect to see a similar pop in C-S values in March and April that we have already seen in median sales prices.
Note: The numbers on the 2 charts below are based upon the January 2000 value of homes being calculated at 100. Thus the number 144 signifies a value 44% above that of January 2000; the number 184 signifies 84% above January 2000. However, a decline from 184 to 144 equals a 22% decline in value from one point to the other.
Before trying to apply Case-Shiller Index trends to specific cities, neighborhoods and homes — which can be deeply misleading — please read the explanation of how the Index works: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF
San Francisco home values have significantly out-performed the overall Case-Shiller Index metro area over the past 12 to 18 months.
Updated numbers table and graph for houses in Noe & Eureka Valleys. Note that of the houses reporting square footage (which usually runs from 60%-75% of all sales), the average size dropped 12% in the 1st Quarter from 2012’s average size. This will typically affect dollar per square foot (increasing it, because smaller homes usually generate higher dollar per square foot values) as well as average sales price (lowering it because smaller houses sell for less). One quarter’s data is not definitive, though the trend upward is clear.
Averages are very general statistics that may fluctuate for other reasons besides changes in value. There is no “average house” or “median house” consistent from year to year, of which sales can be annually compared to calculate exact changes in market values. Statistics are most useful for ascertaining market trends over the longer term.
The only way to assess the approximate fair market value of any particular house is by a comparative market analysis crafted to its particular – and in San Francisco, often relatively unique – specifications.
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, all things are rarely equal in SF 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. Exact location within a neighborhood, condition, curb appeal, amenities, parking, views, lot size & outdoor space all affect $/sqft home values.
All data is from sources deemed reliable, but may contain errors or omissions, and is subject to revision.
The just released Case-Shiller Index reading for January for the high-tier price segment of the 5-county San Francisco Metro Statistical Area declined slightly from December. This reflects seasonal market issues, not a decline in values, and it occurs every year – indeed, the decline was smaller than what is typical.
From January 2012 to January 2013, the Index indicates an 11% increase in house values for this segment of the metro area market. However, the real estate market of the city of San Francisco itself has outperformed the general market of the 5-county metro area. And due to its methodology, the Index is 4 to 7 months behind what is currently occurring in the market. In a quickly appreciating market, that can be a long period of time.
Our full report on the Case-Shiller Index is here: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF
The San Francisco Metro Area Apartment Building Market
The Reis Reports Update Provided by the Paragon Real Estate Group
for the Metro Area of San Francisco, Marin & San Mateo Counties.
MARKET OVERVIEW: The economy of the West Bay area of metro San Francisco (aka the San Francisco Metropolitan Division) had one of the most dynamic economies in the country in 2012, and is attracting more people from across the globe than its housing market can accommodate. “Having left the heavy-lifting to technology companies until early this year, San Francisco’s non-tech employers are playing a growing role in the city’s labor recovery,” Bloomberg News reported.
The dollar value of qualifying single-property apartment sales in San Francisco in 2012 was $879.2 million in 176 deals according to Reis Transaction Analytics. For the fourth quarter of 2012 Reis reports 57 deals for $253.3 million at a mean price of $230,512 per unit. A shortage of properties for sale is holding back deal volume, as demand is enormous.
The 136,650-unit market-rate investment grade San Francisco apartment market features low and falling vacancies and high and rapidly rising rents. “The San Francisco apartment market is exceptionally active,” according to Western Real Estate Business. “It features extremely low vacancies, rapidly rising rents, and tremendous demand for a very limited inventory of assets.”
OCCUPANCY: The fourth quarter 2012 vacancy rate is just 3.2% according to Reis. The rate is already lower than the 3.6% in 2008 (the low of the previous cycle), but above the 1.2% rate recorded for 2000 at the height of the dotcom boom.
“San Francisco leads the region with an average rent of $2,741 per month,” according to our source. “This number has increased by 5.8% over the past year and 22.4% over the last 24 months. San Mateo County follows with a current average asking rate of $2,128 (up 11.6% in the past 12 months and 26.2% over the past two years).”
“Asking rents continue to soar, despite rent control laws in San Francisco,” according to Western Real Estate Business. While perhaps suppressing overall rents, of course, rent control increases the rent of the market-rate units tracked by Reis by locking up apartments and narrowing the housing stock available to meet new demand. Reis predicts another year of strong rent gains in 2013, followed by moderating but still solid gains thereafter. Reis predicts rent gains will be in the vicinity of 5% in 2013.
SUPPLY AND DEMAND: The broader Bay Area is on the brink of a new supply boom, according to Cassidy Turley. “There were 5,300 new multifamily units delivered in 2012 and we are currently tracking another 19,000 units in the development pipeline. San Francisco and Santa Clara Counties are the epicenter of this growth, though we are also seeing development levels quickly rising in the East Bay.”
Whatever level of new supply is added, and many of the huge-development units referenced above could be 10 years or more away from completion, Reis predicts it will be quickly snapped up. With modest deviations, net absorption is expected to match up with new availability through 2017, keeping the vacancy rate very low.
SELECTED SUBMARKET SNAPSHOTS
The 15,771-unit Civic Center/Downtown submarket has a fourth quarter 2012 vacancy rate of 3.7% and an average asking rent of $1,596 per month. The Civic Center/Downtown submarket led the rest in units sold in 2012 at 1,065, and dollar value of sales at $148 million.
In the 8,084-unit Marina/Pacific Heights submarket, the fourth quarter vacancy rate is reported by Reis at 2.1%, the lowest in San Francisco proper, with an average asking rent at $2,348 per month. Among submarkets with substantial sales volumes, Marina/Pacific Heights leads in price per unit at $378,532.
The 15,692-unit South of Market (SoMa) submarket has a vacancy rate of 4.3%, highest among the submarkets (though hardly high), and an average asking rent of $2,485 per month, the second highest market-wide. Out of 544 condominium units completed in the West Bay market in 2012, 473 were in SoMa.
The 8,381-unit North Marin submarket has a vacancy rate of just 1.6%, and an average asking rent of $1,601 per month according to Reis.
For the 10,639-unit South San Mateo submarket, Reis reports a vacancy rate of 1.9%, second lowest among the submarkets, and an average asking rent of $1,740 per month. This submarket is near booming Silicon Valley.
POLITICAL: “San Francisco could soon be home to some of the tiniest apartments in the country: studios for up to two people that include a bathroom, kitchen, and a living area measuring 10 feet by 15 feet,” according to the Associated Press. “The Board of Supervisors approved legislation allowing construction of up to 375 micro units measuring a minimum of 220-square feet.
“Back from the graveyard of dead 2010 ballot proposals is a plan that would compel owners of ‘soft-story’ buildings to retrofit them for earthquake safety by 2020,” Curbed SF reported. “San Francisco’s Board of Supes will revisit the issue, which would apparently apply only to wood-frame buildings built before 1978, with at least three stories.