The San Francisco Home Market: Bounce Back or Double Dip?


Yesterday, an extended piece on The Today Show rated San Francisco as the #1 housing market ripe for recovery. To see the video, go to, scroll down the page to the “Tech & Money” section, then click on the video “5 Housing Markets Ripe for Recovery.”
The following criteria for evaluating areas that are stabilizing and poised for recovery:
-low rate of foreclosures
-appreciation (per National Assocation of Realtors)
-strong job market and low unemployment

San Francisco was the # 1 pick, in front of Pittsburgh, Phoenix, Memphis, and Charleston WV.

I hope the Today Show’s expert Barbara Corcoran is right!

Unfortunately, she may not be.  We live in a constant storm of analysis and opinion as to what is happening and will happen in real estate. Due to national statistics in December (and other economic indicators), some have predicted a nasty “double dip” in the home market subsequent to the recovery which began last spring. But the market goes into hibernation in December: there are far fewer transactions, mostly by first-time buyers purchasing at lower price points, while families and upper-end buyers generally withdraw for the holidays. When the data is reduced and skewed, it’s less reliable. January isn’t much better because it takes a while for the market to wake up.
Data is from sources deemed reliable but may contain errors, and is not warranted. Sales not reported to MLS, such as many new-development condo sales, are not reflected in these statistics. Median price is that price at which half the sales are above and half are below.


Therefore, the market data for February, as seen in the charts below, is of particular interest. While it’s unwise to make too much of one month’s data (a failing of many pundits), it is surprising how sharply February’s statistics indicate a strengthening market. That is not to say a double-dip isn’t possible — the state, national and world economies are still fragile — just that we are not yet seeing indications of one here in San Francisco. Those who have spent the last year waiting eagerly for further price declines have so far waited in vain. (For the record: according to the Case-Shiller index, home values in the 5-county SF Metro Area have increased 4 – 5% in 2009, but the city accounts for only a small percentage of those sales.) It will be interesting to see if the trends seen below continue, as spring gets under way — and what implications that might hold regarding price movements.

Paragon Real Estate Groupclick for larger image Home Listings Accepting Offers
Considering February is a short month (with 2 national holidays), market demand was comparable to the highest levels we’ve seen in the past 18 months. February’s number was 50% higher than January, 80% higher than one year ago (during the market’s dark days), and 12% above February 2008.
Paragon Real Estate Groupclick for larger image Median List Price of Homes Accepting Offers
The most recent market data available is of listings accepting offers. (Sales prices are 30-60 days behind the market, as they reflect when the offer was accepted.) And the median list price of homes accepting offers is generally within a few percentage points of the final sales price. Assuming the steep December/ January drop was a seasonal anomaly, this chart shows little indication of either significantly increasing or decreasing prices. Indeed, the definitive trend is how stable the overall SF median price for homes under contract has been since spring 2009: $700,000 plus or minus about 3%.
Paragon Real Estate Groupclick for larger image Market Activity by Property Type
House and condo sales dominate the SF market, with TICs and 2-4 unit buildings far behind. The low number of closed sales in February reflects the reduced offer activity of the holiday season, and February’s accepted offers will close mostly in March and April. The average time it took for sold houses to accept an offer (59 days) was lower than that for condos (75 days), TICs (109 days) and 2-4 unit buildings (110 days), which reflects the heat of each market segment.
Paragon Real Estate Groupclick for larger image New Listings Coming on Market
New inventory has been increasing since early January, but as can be seen in the other charts, it is not keeping up with buyer demand. We may see a greater surge of new listings with the beginning of spring – certainly the hope of many buyers. This is a week by week chart of the past 6 months.
Paragon Real Estate Groupclick for larger image Homes for Sale (w/o Accepted Offers)
Despite the increase in new listings, the number of active homes for sale — house, condo, TIC — over the last 3 months has been lower than at any time in the past 2 years. This reflects the anecdotal word from the field: strong buyer demand; lots of buyers touring open houses; very limited supply of appealing, well-priced homes to buy; often leading to multiple offers on those that do appear on market.
Paragon Real Estate Groupclick for larger image Percentage of Listings with Accepted Offers
At over 22%, February had the highest percentage of San Francisco home listings with accepted offers of any month over the past 2 years, indicating a market heating up. When looking at homes between $500,000 and $700,000 — the price range with most sales in SF — the percentage increases to over 24%, the highest percentage for that price range in the past 2 years.
Paragon Real Estate Groupclick for larger image Average Days-on-Market for Homes Accepting Offers
The lower the days-on-market, the faster listings are accepting offers. February saw a big plunge in average days on market (to 47 days) for homes accepting offers. In fact, the change was so dramatic, it may be anomalous — or it may simply reflect pent-up demand, as buyers returning from the holidays jump upon an insufficient supply of inventory. It is the lowest average days-on-market number in the past 2 years.
Paragon Real Estate Groupclick for larger image Months-Supply-of-Inventory (MSI)
MSI is defined as that number of months required to sell the existing inventory of available homes at the current rate of sale: the lower the MSI, the stronger the demand as compared to supply. At an MSI of 3.1 months, February had the lowest MSI figure for SF homes of the past 2 years. The MSI for SF homes between $500,000 and $700,000 is an even lower 2.7 months. Usually MSI figures this low would be considered a clear “Sellers’ market,” but with difficult financing conditions and uncertainties regarding the economy, the balance of power between qualified buyer and motivated seller is currently more complicated.
Paragon Real Estate Groupclick for larger image Inventory Absorption: SF Home Market
The longer gray lines delineate “residual inventory”, i.e. that number of listings actively for sale on the last day of the month which were listed prior to the first day of the month: simply put, listings which have not accepted offers within 1 month of going on market. January and February saw the lowest amount of residual inventory in the last 2 years. Also the ratio of properties which have accepted offers to residual inventory is at the highest level in 2 years. Two more statistics indicating a strengthening market.
Paragon Real Estate Groupclick for larger image Sold Listings vs. Expired Listings
The green bars indicate sold listings and the purple bars the expired/ withdrawn listings in any given month. (Again, the low number of sales in January and February reflect the low number of accepted offers during the holidays.) Even with the relatively strong demand in SF since last spring, for every 3 homes that sold, another 2 listings expired without selling. The current market is unlike our (very hot, perhaps irrational) market of 2 – 3 years ago, when it seemed that virtually everything sold quickly. Most Buyers now ignore listings they consider overpriced, and homes not priced within 5% – 8% of perceived fair market value usually don’t even receive offers.
Paragon Real Estate Groupclick for larger image Luxury Homes Accepting Offers
This 2-year chart delineates the number of San Francisco homes priced $1,500,000 and above which accepted offers in any given month. Luxury home sales rebounded in February 2010 from the doldrums of the holiday season, back up to the highest levels seen in the past year — but still substantially below the activity seen before the market meltdown in September 2008.
Paragon Real Estate Groupclick for larger image Luxury Homes: % of Listings with Accepted Offers
At 19%, February saw the highest percentage of high-end listings ($1.5m and above) with accepted offers since July 2008, an obvious indication of increasing demand amid relatively low supply. A year ago, the percentage was a very low 7% (following the crash in the luxury home market after September 2008), and 2 years ago, during the hot luxury market, the percentage reached a high 28%.
Paragon Real Estate Groupclick for larger image Mortgage Rates
As March began, the average rate for 30-year fixed-rate loans once again fell below 5%, which is very low. Many analysts believe rates will increase after the Fed ends its bond buying program at the end of March, and though opinions vary, the consensus forecasts an approximate 1% increase by the end of 2010. 6% is still a low rate historically, but the increase would add significantly to the carrying cost of home ownership.

As I mention in my article on volume, more activity puts pressure on prices. As you can see in the table below, the number of transactions where the property is selling for more than the asking price, is sharply up from earlier this year, where even for single family homes, under 20% of transactions were yeilding a sales price over asking. We’re at a whopping 54% of single family home transactions closed in the last two weeks coming in over asking price.  To see more about earlier in the year, click see “Have we found the Floor?” from July 31, 2009

Last 2 weeks’ home sales in SF:      
  Over Ask Under Ask At Ask Total 
SFD 39 20 13 72
% of sales 54% 28% 18%  
Condos/TICs 17 41 13 71
% of sales 24% 58% 18%  
2-4 Unit Buildings 2 9 1 12
% of sales 17% 75% 8%  
Total 58 70 27 155
% of sales 37% 45% 17%  

In every category, even luxury, the number of homes sold is trending upwards. The charts below are not reflective of the price they are trading at, but generally higher market activity starts to put upward pressure on prices. The charts below show a two year period ending August 30, 2009.  Overall, my reading of these charts is that if you were waiting for the market to bottom out, it has already done so.  Also, it’s still a very good time to buy between 500k and $2MM as those curves have only just started to gently edge up.

Home Sales $500,000 & Under (It must be noted here that one of the reasons the growth in sales is so high is because there were fewer homes as a proportion of the market under $500,000 back in 2007.)


Home Sales $501,000 – $999,000


 Home Sales $1,000,000 – $1,999,999


Home Sales $2,000,000 and Above


Yesterday, the Case-Shiller Index — considered the most objective index of US home prices — reported, as pertaining to April to May prices: “10-city and 20-city composites reported positive returns for the first time since the summer of 2006…the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing.”

For the SF Metro Area (i.e. greater Bay Area, NOT just SF), C-S reported gains of .6% March to April, and 1.4% April to May. Year over year, C-S reported an overall metro area decline of 26.1%. Read the full article here.

From my own experience, I can happily say that things are picking up. Home of the Week 1617 Fulton went into escrow after just 5 days or so on the market with a pre-emptive offer. My listing at 640 Judah got three offers after just a short time on the market, and buyers who I am working with now are regularly competing in a field of 3 or more offers. To be clear, these deals are all well under the $1MM mark, and activity is definitely being driven by the availability of financing available at very low rates. Homes that are not eligible for these low rates – most TICs and homes requiring a loan over $729k are not moving nearly as briskly (if at all -oh so gorgeous Home of the Week 116 Sugarloaf has been on the market over a year and has been reduced from $7.5MM to a mere $4.5MM).

The below charts show that there has been a substantial increase in sales volume, and about a 20% decrease in homes selling under asking price.  Volume for the two weeks ended July 15 was 172% of what it was for the period ended March 18 of this year.  It is too soon to tell if the decrease in homes selling under asking price (and the commensurate increase in those selling over) means that prices are climbing.  However, my recent market experiences tell me that there has been a shift toward underpricing homes to attract attention (and multiple offers) in the “affordable” sectors of the market.

Well, it’s changes like these that keep things exciting and I am really happy to be participating in these busy times due to the support I get from all of you. Thanks, as always for your referrals and for letting me be your go-to person for your real estate needs.

(All data is from San Francisco MLS)Market Stats 73109

In recent weeks, the number of listings accepting offers has increased substantially, while the number of price reductions and expired and withdrawn listings – though still high by historical standards – has decreased significantly. Months-supply-of-inventory (MSI), an indicator of seller supply and buyer demand, has also declined. (The higher the MSI, the greater the buyer advantage.) Whether this will prove to be the beginning of a durable resurgence for SF real estate or simply a springtime bounce, it is too soon to tell.

The area where most house sales are now occurring is Realtor District 10 (Bayview-Portola-Excelsior). Then comes District 2 (Sunset-Parkside), District 5 (Noe-Castro-Haight) and Bernal Heights. District 10, with the greatest number of foreclosure sales, has been hardest hit by price declines, and has roughly as many sales as Districts 2 and 5 combined – so it has had a massive impact on overall median price in SF. (Which is one reason why the overall city median home price is virtually worthless as an indicator of changes in market values.)

Most condo sales are occurring in South Beach-SOMA, then District 5 (Noe-Castro-Haight), and then District 7 (Pacific Heights-Cow Hollow-Marina). These numbers don’t include new development sales unreported to MLS – which would greatly increase the South Beach-SOMA sales numbers. The new developments are doing everything they can to move inventory right now.

Foreclosure Sales Update

Since mid-October 2008, 17% of house sales and 6% of condo sales in San Francisco have been REO (bank-owned) homes. The median sales price of an REO house during this period has been relatively stable at about $500,000; the median sales price for an REO condo has been $432,000. 78% of REO house sales have occurred in the less affluent south/southeast part of the city, stretching from Bayview to Oceanview. 85% of REO condo sales have been in the neighborhoods stretching south from SOMA along the east side of the city down to Bayview and across to Oceanview. The greater part of the city – northern, central and western neighborhoods – continues to be relatively unaffected by foreclosure sales.

The below is a detailed analysis of current market conditions in San Francisco.  The quick and dirty jist of things is:  lots of properties are sitting on the market at much higher prices than they will eventually sell for.  If you are a buyer, and you see something you like – go for it!  If you are a seller, beware the temptation to “leave room to negotiate.”  It will cost you in time and ultimately in sale price.  Finally, if you are thinking of buying or selling in this complex market, be sure to ask for the help you need.  Please always remember, I am here with a great team of financial, staging and marketing professionals to help you and yours get it done with the best possible outcome.

At current market trends, over the next month:*

  • 1400 active house & condo listings will be joined by 600 new listings.
  • 1 in 7 or 8 of those listings will accept an offer to purchase.
  • 1 in 8 will expire or be withdrawn from the market (didn’t sell).
  • 1 in 4 will reduce its asking price.
  • 75 active bank-owned (REO) homes will be joined by 45 new REO listings: 1 in 3 will accept offers.
  • Of the listings that do accept offers, 1 in 3 or 4 will come back on market because the purchase fell through — typically due to financing difficulties, property condition issues or buyer remorse.

*All numbers are approximate; neither TIC sales nor non-MLS new-development sales are included.

List Price, Offer Price, Sales Price

  • Of the house and condo listings that SOLD in the first 2.5 months of 2009:*
  • 1 in 4 accepted offers within about 15 days of going on market, i.e. almost immediately. Of these, the houses averaged a sales price of about 1% over asking price, while condos averaged about 4% below asking.
  • The supply and demand equation is currently weaker for condos than for houses; the equation for TICs and multi-unit buildings is much weaker still — financing is now very difficult for these properties.
  • Those accepting offers after 45 to 75 days on market sold at an average of 3% to 4% below last asking price and 7% to 10% below original list price.
  • Those accepting offers after 105 days on market sold, on average, 4% to 5% below last asking price and 14% to 18% below original price.
  • No matter how long a home was for sale, it still sold, on average, within 3% to 5% of the last price, even as — with price reductions — the discount off the original price grew much larger as time passed.

* For SF house and condo sales reported to MLS by 3/17/09. City districts with high foreclosure rates, as well as confidential sales and ultra high-end sales were excluded to avoid distorting general market statistics.

What it Means
The vast majority of buyers and buyers’ agents will NOT make an offer until they perceive the property’s asking price to be within 5% of “market value” (i.e. what they’re willing to pay).

1) They don’t want to waste time and emotional energy on a listing they consider significantly overpriced, since they believe coming to an agreement with the seller is unlikely. Or

2) They’re uncomfortable with the possibility of provoking a negative reaction from seller or listing agent.

Generally speaking, ours is not a society comfortable with aggressive negotiating, even though it can reap large rewards. Remember that a negotiation is a conversation between buyer and seller that doesn’t really begin until an offer is made. And until it’s made and the negotiation concludes, no one knows what price and terms might result — so don’t make ironclad assumptions based upon either asking price or initial offer price.

Lessons for Buyers
If you see a home you like, ask yourself: at what price would you be a buyer? Review recent comparable sales and market trends with your agent, and then make an offer — at or under whatever price you’re willing to pay. The first rule of negotiation is, “You never know until you ask.” A few buyers are negotiating discounts of 10% to 25% off list price, because they’re unafraid to make low offers.

Don’t waste time asking the seller or listing agent if they would entertain a low offer — they almost always say no (out of pride and/or a misunderstanding of how negotiations proceed). No one knows how anyone will actually react to an offer until the offer is made.

Ultimately, the home you buy will be a good or great value based upon the price you pay, not the price the seller asks. So focus on the first, instead of the second.

That said, those properties perceived as excellent values are still generating offers — and sometimes, multiple offers — quickly, and a home purchased 20% below asking price is not necessarily a better value than another purchased at full price: it all depends on the property and how it was priced to begin with.

Lessons for Sellers
Never discourage buyers from making offers. Counter-offer unacceptable offers instead of rejecting them outright.

Those 25% of sold homes which accept offers within 2 to 3 weeks of going on market achieve the highest percentage of sales price to list price. To do so in today’s market, your property must stand out as an excellent value: priced, prepared and marketed perfectly.

A listing will never get as much attention as in its first few weeks on market and pricing properly to begin with almost always results in more money than starting out high and reducing later. Most buyers will NOT make offers on homes they consider over-priced — and the longer a home stays on the market, the less value it holds in buyers’ calculations.

If you do need to make a price reduction — and in a changing market, the right listing price can change — do it as soon as possible and make it dramatic enough to recapture attention.

The only definition of fair market value that counts is: “That price a qualified and reasonably knowledgeable buyer will pay to a willing seller after the property has been properly exposed to the market.” To make it more complicated, that price is changing all the time.

Paragon in a Changing Market*

For SF home sales (house, condo, TIC) from October 15th, 2008 — when the 9/15/08 financial meltdown began to show up in sales data — through March 16, 2009, Paragon had the highest average sales-per-agent of any brokerage in the top 10 with at least 20 agents: higher than Sotheby’s, McGuire, Hill & Company, Pacific Union, Coldwell Banker, Zephyr, Vanguard and Alain Pinel. Paragon also had the lowest days-on-market figure of any of those companies. And year-over-year for this period, our market share increased by 38%.

As the market becomes more challenging, we’re working harder for our clients and obtaining superior results.
*Per Broker Metrics, for SF home sales reported to MLS as of 3/16/09

The purchase or sale of one’s home is typically one of the largest, most complicated financial transactions of one’s life. The quality of agent working on your behalf — his or her competence, integrity, work ethic and commitment to your interests — can make an enormous difference in the outcome.  In this market where so many companies are shrinking, Paragon continues to grow because of our strategy of hiring only the best agents with the ability to generate business through referrals that are earned based on long-term competetent service to our community.  I am committed to being your real estate advisor for life and sincerely appreciate the continuous support you all provide to my business.

All data from sources deemed reliable but subject to error or omission, and not warranted. 3/25/09

A burning question for most of us, to be sure.  The below analysis should help to shed some light.  However, a friend of mine says that statistics are like bikinis (they can cover up the crucial bits while exposing only what they intend to expose) and I couldn’t agree more.  If you want a detailed analysis of the value of your home, don’t be shy about asking.  Your situation is likely a bit different than the “big picture.”

This analysis of San Francisco neighborhoods compares dollar per square foot ($/sq.ft.) at what is estimated to be the time when peak value was reached, to what the $/sq.ft. was for sales occurring 10/15/08 – 1/30/09. (Sales occurring after 10/15/08 reflect the impact of the 9/15/08 financial meltdown on the SF market.)

The neighborhoods below were chosen because enough sales occurred in the comparison periods to generate what appeared to be reliable statistical results. (Many areas of the city did not have sufficient sales.) We have chosen $/sq.ft. because it is more trustworthy than median prices when trying to assess changes in value for specific properties.  Indeed, median prices have dropped significantly more than $/sq.ft. because less expensive homes now make up a much larger proportion of sales than they did previously (for a variety of reasons, especially financing conditions).

Different areas reached peak values at different times – in 2006, 2007 or 2008 – and the asterisked notes denote the estimated peak value period that pertains. The price ranges of the sales included were chosen because we felt them to be in a standard range of value for the area and property type specified – thus attempting to eliminate both the ultra high end and the ultra low end, which often distort averages.

Important note: the changes delineated probably understate the actual decline in values for 3 reasons:

  1. In a declining market, sales data – which typically shows up 30 to 45 days after acceptance of offers – will always be a step behind current activity, i.e. offers being accepted right now.
  2. The market has definitely shifted to smaller, less expensive homes (less expensive as to total sales price). All things being equal, a smaller home will have a higher dollar per square foot value than a larger one, therefore skewing current values higher than they ought to be in an apples-to-apples comparison.
  3. In a sellers’ market, virtually everything sells, but in a buyers’ market, typically just the best homes sell – best appearing, best condition and/or best value. So the $/sq.ft. for the recent period applies to the “best homes” while the $/sq.ft. for the peak period applies to homes of a much wider range of quality.

Key to Estimated Peak-Value Period for the Chart Below:

*             Peak values estimated to have been reached 1/1/06 – 6/30/06
**           Peak values estimated to have been reached 1/1/07 – 6/30/07
***        Peak values estimated to have been reached 1/1/08 – 6/30/08

Only homes with parking were included in the below analysis. SFD = single family dwelling (house)

or District
Property Type
Price Range
Avg $/sq.ft. at Peak of Market $/sq.ft. for Sales
10/15/08 – 01/09
Change in Avg $/sq.ft. Value
(District 10)*
SFD (House)
$400 – 800k
$554/sq.ft. $416/sq.ft. – 25%
Ingleside/ Oceanview* SFD
$400k – 800k
$572 $459 – 20%
Potrero Hill/ Bernal Hghts** SFD
$700k – 1.6m
$678 $610 – 10%
Richmond District** SFD
$700k – 1.6m
$582 $547 – 6%
Parkside/ Outer & Central Sunset** SFD
$550 – 1.1m
$608 $542 – 11%
Miraloma/ Sunnyside** SFD
$600k – 1.2m
$667 $611 – 8.4%
SOMA** Condo
$500k – 900k
$689 $534 – 22.5%
Noe & Eureka Valleys*** SFD
$800k – 2m
$856 $770 – 10%
Noe & Eureka Valleys*** Condo
$500k – 1.2m
$759 $704 – 7%
Pacific Hghts/ Marina (Dist 7)*** Condo
$600k – 1.2m
$818 $762 – 7%
South Beach*** Condo
$500k – 1m
$785 $713 – 9%
Hayes Valley/ Alamo/ NOPA*** Condo
$500k – 900k
$684 $612 – 10.5%

Averages are generalities and cannot account for the varieties in location, condition and amenities found in SF homes. Averages may be affected by unusual events or anomalous short-term trends, and do not necessarily reflect values for specific properties.  

All data from sources deemed reliable, but not guaranteed and may contain errors and omissions. Sales not reported to MLS – such as many new condo-development sales – are not included in this analysis. February 3, 2009