October 2015 San Francisco Real Estate Report

07 Oct

October 2015 San Francisco Real Estate Report

The autumn selling season started with a large surge of new listings right after Labor Day, but it will be another month or so before preliminary statistical data is available on home sales negotiated since then. However, it is clear that the recent volatility in national and international financial markets has not so far caused a severe adjustment to local home prices. While we wait for early autumn sales to close in quantity, we’ll review the market from a variety of angles.

A wide range of other reports pertinent to SF real estate values and trends can be found here: San Francisco Market Reports and San Francisco Neighborhood Values

Short-Term & Long-Term
San Francisco Home Price Appreciation

2011 – 2015, by Quarter
Median-Price_Bar-Chart_Qtr_SFD-Condo-Combined

It’s not unusual for median prices to drop in the 3rd quarter, which happened this year as well. This has less to do with fair market value, than with the fact that the market for higher priced homes slows down much more than that of the general market in summer.

1994 – 2015, by Year
1993-2010_SF_Median_Sales_Prices_Cycle-Labels

Return on Cash Investment
Comparing Buying a Home in San Francisco
to Inflation, Gold, the S&P 500 & Apple Stock

10-15_ROI-on-Cash-Invest_Comp-RE-Gold-Apple-SP500

For the purposes of this analysis, we’ve broken home ownership into 2 aspects, the first being ongoing housingcosts – mortgage interest, home insurance, property taxes, maintenance – which after tax deductions could be compared to the cost of renting a similar home. The second aspect, illustrated in the chart above, is the cash investment side of buying a home and the compound annual return on that investment, after closing costs and loan principal repayment are deducted, if one had purchased a median SF house in 1994.

For the San Francisco Median House calculation, we used the 1994 median price ($265,000), with a 20% downpayment ($53,000) and paying 1.5% in buy-side closing costs ($3975) for a total cash investment of $56,975. Net proceeds were calculated using the 2015 YTD median sales price ($1,250,000), deducting 6% in sell-side closing costs ($75,000) and the original 80% mortgage balance ($212,000), which equals $963,000. This equals an annual compound return on investment of 14.4% over the 21-year period.

All of us should have put every penny we had into Apple stock in 1994, but barring that, purchasing a home in San Francisco would have been a decent alternative – particularly if you’d bought in Noe Valley or the Mission. Three factors not included in the above analysis further increase the financial benefits of home purchase over the other investments graphed: 1) the $250,000/$500,000 capital gains tax exclusion on the sale of a primary residence (potentially saving up to $75,000 in taxes), 2) the “forced savings” effect of gradually paying off one’s mortgage (if one resists refinancing out growing home equity), which has a substantial wealth-building effect, and 3) over time, the ongoing cost of housing with a fixed rate loan, strategically refinanced when rates go significantly lower, will usually fall well below rental costs that continue to rise with inflation.

With financial assets subject to market cycles, changing the buy or sell dates in this analysis can dramatically affect the return. We picked 1994, because of the availability of MLS median price data going back to then.

Median Sales Prices by Neighborhood

2-Bedroom Condos in San Francisco

Median_Price-2BR_Condos_by-Neighborhood

3-Bedroom Houses in San Francisco

Median_Price-3-4BR-SFD_Comp

Market Dynamics

Sales Price to List Price Percentages
& Average Days on Market

DOM_by-Price-Reduction_by-Qtr SP-OP_Comp-by-Price-Reduction_by-Qtr

These two charts above illustrate both how competitive the market has been – the average SF home selling without a price reduction sold very quickly for 13.5% over asking price in the 3rd quarter – and the significant difference between homes that get an immediate market response and thosethat have to go through one or more price reductions before selling.

Months Supply of Inventory

Seasonality, Luxury and Non-Luxury Homes

MSI_Luxury-Homes_vs_Non-Lux

The lower the Months Supply of Inventory, the stronger the buyer demand as compared to the supply of homes available to purchase. This chart illustrates the seasonality of the real estate market – typically strongest in spring (especially) and autumn, and slowing down during the summer and especially the winter holidays. It also shows that the lower-priced home segment is generally hotter than the higher priced – as shown by the lower MSI readings – and finally, how much more the luxury home segment is affected by seasonality. The dramatic slowdown in the highest-priced segment during summer and winter is one of the big reasons why median home prices usually drop during those seasons.

Condo Average-Dollar-per-Square-Foot Values
by Era of Construction

AvgDolSqFt_Condo-by-Era-Built

The Most Expensive Condo Buildings in San Francisco
Condos_Most-Expensive-Buildings

This doesn’t include brand new luxury condo developments – some of which are selling at very high prices – nor many very expensive and very prestigious condo and co-op buildings which simply have too few sales for meaningful statistical analysis.

3rd Quarter Market Snapshot
New-UC-Expired-DOM-Median_by-Property-Type

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 and all numbers should be considered approximate. How any median or average statistic applies to a particular home is unknown without a specific comparative market analysis. We are not qualified to render legal or tax advice of any kind. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier.

© 2015 Paragon Real Estate Group