San Francisco Real Estate Looking Back on 2018

There were almost too many local, national and international political, economic, social and ecological factors impacting the 2018 market to count. In the first half of the year, market conditions were about as hot as they’ve ever been, and there were staggering year-over-year appreciation rates. Come summer/early autumn, real estate and financial markets began to shift distinctly cooler. Looking at 2019, there are many wild cards whose impacts are difficult to predict: extremely volatile financial markets, fluctuating interest rates, contentious national politics, international trade issues, spiraling debt levels, employment growth – and a dramatic surge of local high-tech unicorns that plan to go public, which could create a tsunami of new wealth in the Bay Area.

Year-over-Year Annual Appreciation

Comparing 2018 to 2017, the median house sales price jumped 13% or $185,000 to $1,600,000 – the largest annual dollar increase ever (not adjusted for inflation) – and the median condo price increased by $60,000 to $1,210,000.

Year-over-Year Appreciation by Quarter

When one breaks 2018 down by quarter, it is clear that the big increases in price occurred in the first half of the year, after which the median house sales price declined. By the 4th quarter of 2018, the quarterly, year-over-year median house appreciation rate had basically dropped to zero. Condo prices were basically flat Q2 to Q4. This trend of high appreciation rates in the first half plunging during the second half was relatively common around the Bay Area.

Home Prices by San Francisco Neighborhood

The city has more than 70 neighborhoods, and our tables of median house and condo prices by bedroom count run 6 pages. Below the map are 4 tables of selected neighborhoods – let us know if you would like the full reports.

SF Home Sales by Price & Property Type

SF Housing: Era of Construction

Luxury Home Sales Trends
Short-Term & Long-Term

As seen in the next 2 charts, luxury home sales have, generally speaking, held up quite well in San Francisco, though there was an increase in high-end listings withdrawn from the market without selling (3rd chart below).

The number of luxury home listings that were pulled off the market without selling climbed at the end of 2018. Many will be re-listed in 2019.

Selected Market Indicators

The dramatic decline in house listings coming on market (red line) has been a major factor in the median house price appreciation rate since 2012. Condo listing inventory has been significantly impacted by new-condo construction during this period.

Price reductions and listings pulled off the market without selling both hit new highs since the recovery began in 2012.

Hiring has continued to fuel the SF and Bay Area economy. So far, it has continued to hold up.

After a big jump in autumn, interest rates saw a drop of similar magnitude through the first week of January, which is good news for real estate markets.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

InvestSF December 2018 Bay Area Real Estate Markets Survey

We are always hesitant to make too much of a single month’s or a few months’ data: Short-term fluctuations in median sales prices and other market statistics are not uncommon and don’t always give definitive perspective as to where the market is heading on a longer-term basis. Still, many of the changes seen over recent months are substantial – and none more so than the sudden plunge in year-over-year median price appreciation rates illustrated below: a number of counties plummeted into negative territory in November, and the others saw drastic declines.

Again: It is important not to make too much of short-term data. Indicators can also be somewhat schizophrenic at the beginning of a significant market transition – if that is what is occurring – as buyers, sellers and agents struggle to figure out a changing reality.

As a sample of a month by month progression over the past year: Santa Clara County may have been the hottest market in the country in 2017 through early spring 2018. Then it started cooling off more rapidly and more definitively than most other Bay Area markets. This shows up in a number of statistics, including declining year-over-year appreciation rates, as illustrated below.

Q3 2018 Median House Sales Prices

What the Median Price Buys by Bay Area County

Bay Area median home prices vary enormously, and so does what one actually gets for those median prices: From a 3-BR, 2-BA, 1418 square foot home in Oakland to a 4-BR, 3-BA, 2460 square foot home in Lamorinda and Diablo Valley (in Central Contra Costa). Comparing median sales prices is not an apples-to-apple calculation of value.

Bay Area & CA Appreciation since 1990

Bay Area Appreciation since 1990 by County

San Francisco Home Price Appreciation

As a sample of county median price trends, below is a chart illustrating 3-month-rolling median price movements in SF itself – 3-month rolling data doesn’t fluctuate as wildly as monthly prices sometimes do, though there are clear seasonal changes. It’s not unusual for median sales prices to drop from springtime highs, but the drop this year in the median house price (the top blue line) has been somewhat longer and deeper than is usually the case: By November, it was $145,000 below the peak hit in April 2018.

Bay Area vs. U.S. Appreciation since 1987

The below chart based on S&P CoreLogic Case-Shiller data – which uses its own algorithm to measure home price appreciation instead of median sales price changes – compares real estate market cycles between the Bay Area and the United States over the past 30 years.

U.S. Comparative Home Values by City

One can buy approximately 14 median-priced 3-bedroom homes in Philadelphia, 10 in Houston, 4 in Miami or Portland, or 2 in Seattle, for the cost of one in San Francisco.

Bay Area Median Lot Sizes

Depending on the county or community, the amount of elbow room around your home – as measured by median lot size – also varies. Even the most expensive homes in San Francisco, costing $20m to $40m, often sit right next to each other. In other counties, at the upper price ranges, one sometimes gets rolling acreage or vineyards.

Bay Area Median Condo Prices & Appreciation

Sales Volumes by County

Bay Area Luxury Home Markets

There was no overall plunge in Bay Area luxury home sales this autumn: Year over year, sales ticked up about 6% in the 3-month period.

However, results varied by county: Santa Clara County – with more $3 million+ sales than any county in the state – saw a year-over-year decline of 14%. San Francisco luxury house sales were up 16%, but its luxury condo sales were flat. San Mateo was up 17%, Marin down 16%, Alameda and Contra Costa up 11%, and wine country luxury home sales increased by 26%. (Different price thresholds were used for the luxury designation depending on county.) These widely varying ups and downs muddy the picture of where the Bay Area luxury market is heading.

By a nose, San Francisco luxury condo sales top the list for highest average dollar per square foot values.

The Bay Area has a wide range of options in big, high-priced homes, with Atherton – recently designated the most expensive zip code in the country – and the neighborhoods of Pacific & Presidio Heights in San Francisco at the top of the price scale. (For those who don’t like yard work, there’s the option of a lavish penthouse condo or co-op in Russian Hill or South Beach.) There are homes or estates selling above $5 million – sometimes far above – in every county in the Bay Area, except Solano.

Supply & Demand Indicators

After 7 years of strong market recovery (or “up cycle”), there are preliminary signs of notable shifts in the market – but the magnitude of the changes vary considerably by statistic and by county. Though everyone wants to jump to definitive conclusions, it would be premature to confidently predict the course of a sustained, longer-term transition, if that is what is occurring. There are a lot of spinning plates in local, national and international economies and politics right now.

Listings vs. Sales

Though not especially high by historical standards, the overall supply of listings on the market has been appreciably increasing this autumn – to its highest level in 4 years (as charted below) – but sales volume in September-November 2018 was down about 12.5% on a year-over-year basis (not charted). That’s about 2000 fewer sales.

Generally speaking, during the recovery since 2012, an inadequate and often decreasing number of listings met increasing and sometimes feverish demand from buyers, adding immense upward pressure on home prices. For the time being at least, that pressure is now subsiding as the balance between supply and demand shifts.

Overbidding & Under-Bidding

As demand declines and inventory increases, the competition between buyers – and the need to overbid asking price to win the sale – subsides. Seasonality plays a big role in this statistic, and there are still many homes selling for over asking price, but the overall average Bay Area sales-price-to-original-list-price percentage has dropped below asking price – by a smidge – for the first time since January 2017.

Price Reductions

The dramatic increase in price reductions is a stark indicator of changes in the supply and demand dynamic. October saw a massive spike, but September and November numbers were also much higher than in the previous 6 years. Price reductions are a measure of the difference between buyer and seller expectations as to fair market value.

Expired & Withdrawn Listings – No Sale

The increase in listings taken off the market without selling – which jumped to about 2000 in November – is another indicator of disconnect between what sellers are willing to accept and buyers are willing to pay. Expired/withdrawn listings typically peak in December, so we may see a further increase next month. Many sellers who pull their homes off the market in November and December will try again next year.

Mixed Economic Indicators

Housing affordability is a huge social, political and market issue in the Bay Area. Though very low, current affordability percentages – as calculated by the CA Association of Realtors Affordability Index – are not quite as low as in 2007. (We cover affordability in a separate report.)

Bay Area Rents

Most economists expect to see something of a balance between what it costs to buy or to rent a home, but since 2015, rent increases have either moderated, or, in the case of San Francisco, rents have declined, while home prices and interest rates have increased substantially.

Employment

Since the last recession, the Bay Area has been one of the greatest job creating machines in the world. Unemployment rates are currently bumping along at historic lows.

Money, Money, Money

The astonishing amount of venture capital sloshing into the Bay Area affects the overall economic environment and its housing markets. When start-ups go public they can pour additional, immense quantities of new wealth into the pockets of founders, investors and employees – and then into the surrounding economy. Some major local unicorns have stated their intention to go public in 2019, though continued stock market volatility may affect those plans.

Local median household incomes have risen well above the national median. Among other factors, the people moving into the Bay Area tend to be more affluent than those moving out. (However, local poverty rates have also risen in recent years.)

Stock Prices

The S&P 500 saw an incredible surge in value from January 2016 through late September 2018 – rising about 50% – but its increase looks distinctly modest compared to the astounding share price movements of some of our local high-tech giants. Soaring stock values make people feel wealthier, more optimistic about the future, more willing to take on new debt, and more positive about buying new homes (and everything else). But when financial markets get volatile, sometimes seeing sudden, precipitous declines – as has occurred in recent months – buyers often become cautious.

Note that as of early December, financial markets have lurched up and down again since their late November lows, i.e. a queasy, high market volatility continues.

Interest Rates

Through spring 2018, home buyers appeared to shrug off concerns about rising interest rates, but that seems to be changing as rates continue to adversely affect affordability. Besides mortgage costs, increasing interest rates affect debt of all kinds, and whether private, corporate or governmental, debt levels around the world are generally at historic highs. High debt plus rising rates can be a dangerous economic indicator.

Population Growth & Migration

Increasing populations without a concomitant increase in new housing pressures rents and prices. Right now, California and Bay Area populations continue to grow, but at a reduced rate from recent years. Of course, population growth itself has both positive and negative economic and quality of living effects depending on the viewpoint.

The new U.S. Census state-to-state migration data for 2017 is illustrated below. Generally speaking, the Bay Area has followed state trends, i.e. more people moving out than moving in domestically, but that deficit more than made up by foreign immigration. Employment and/or cost of living issues, including housing affordability, are probably the dominant factors in these migration figures. It will be interesting to see whether the new 2018 federal tax law changes and the increasingly negative U.S. government attitude to immigration affect 2018 migration figures.

Compass is a real estate broker licensed by the State of California, DRE 01527235. Equal Housing Opportunity. This report has been prepared solely for information purposes. The information herein is based on or derived from information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. Compass disclaims any and all liability relating to this report, including without limitation any express or implied representations or warranties for statements contained in, and omissions from, the report. Nothing contained herein is intended to be or should be read as any regulatory, legal, tax, accounting or other advice and Compass does not provide such advice. All opinions are subject to change without notice. Compass makes no representation regarding the accuracy of any statements regarding any references to the laws, statutes or regulations of any state are those of the author(s). Past performance is no guarantee of future results.

San Francisco Real Estate Market Update: November 2018

market report

Midterms have passed and the Democrats have taken back control of the House, effective January 1st. It remains to be seen if they will attempt to reinstate full deductibility of homeowners’ mortgage interest, which could help keep San Francisco home prices trending upwards.

Over the past four weeks, the stock market has had significant gyrations, including a 1200 point decline in the last two weeks of October which capped that month’s worst performance in seven years. This volatility may negatively impact buyers who depend on stocks for their downpayment.

The economy remains robust and the Federal Reserve Bank is expected to continue raising interest rates to keep it from overheating, resulting in inflation. These rises will be a counterweight to rising home prices because rising interest rates dampen buyers’ purchasing power.

In San Francisco, inventory rose very slightly from last year for both single family homes and condo/loft/TICs, but the market remains very solidly in the sellers’ drivers seat.

Single Family Homes:

  • The three-month rolling average median sales price of $1,550,000 is up 8.8% over last year’s*.
  • Year-to-date, new listings are up 5.1% while sales are down 1.5%.
  • October’s inventory of 2.5 months is 13.6% higher than in 2017.
  • 82% of homes sold over their list price and the median percent of list price received was 113%.

Condo/Loft/TIC’s:

  • The three-month rolling average median sales price of $1,199,633 is up 6.2% over last year’s*.
  • Year-to-date, new listings are up 5.6% while sales are up 7.7%.
  • October’s inventory of 3 months is 3.4% higher than in 2017.
  • 68% of condo/loft/TIC’s sold over their list price and the median percent of list price received was 106%.

San Francisco Real Estate Market Update: October 2018

market report

SF Unicorn IPOs

  • Five San Francisco-based tech “unicorns” are planning on going public in 2019
  • Uber, AirBNB, Stripe, Pinterest, and Lyft
  • Once they have their IPOs, their employees will likely take their cash windfalls and purchase homes in and around San Francisco, driving sales prices even higher

The Beige Book

  • More strong economic news came from the Federal Reserve Bank’s September Beige Book economic report which shows continuing strong job and wage growth in the San Francisco region
  • It notes that the real estate market activity has continued to expand, in spite of higher interest rates, and the low inventory coupled with strong demand pushed prices and rents higher

Measure of CEO Confidence

  • The Conference Board’s Measure of CEO Confidence, which had slipped in the second quarter, declined again in the third quarter
  • This report is a window into planned capital spending, expansion and hiring, all of which can have a significant impact on jobs and hence home-purchasing demand
  • Yet it may not reflect the more bullish, expansionary tech sector dominating San Francisco’s economy

Peninsula Real Estate Market Update – July 2018

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Summary:

It definitely feels like the dog days of summer in the San Mateo County real estate market. The trend is continuing. Properties are not selling as fast, nor with as many offers, as has been the norm. This may be somewhat seasonal as many people turn their attention to vacations and travel over the summer, with real estate taking a back seat. It may be that the market heated up too fast earlier this year, at an unsustainable rate, so it’s self-correcting. It’s actually a good thing. The rate that prices were increasing by was clearly not sustainable over the long term. Interestingly, this trend is showing up mostly in single family home prices. Condos and townhome sales do not seem to be affected yet.

Here’s a summary of the numbers.

San Francisco Real Estate Market Update: March 2018

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As of the end of February, there were fewer total home, condo and loft sales in the first two months of 2018 than in any of the previous ten years. And while it’s impossible to say exactly what is causing the low number of sales, it is possible that buyer fatigue following six straight years of rising prices, interest rates jumps, and stock market volatility may all be contributing.

At the same time, the median sold price per square foot for a single family home broke the $1000 threshold for the first time in San Francisco. That is up almost 150% since it bottomed out at $408 in January, 2012. And, enough buyers are still buying that prices are still rising. February’s median home price crossed $1,700,000, another first.

Single Family Homes:
The three-month rolling average median sales price of $1,501,667 is up 17% over last year’s.

Year-to-date, new listings are down 7.4% while sales are down 9.7%.

February’s inventory of 1.4 months is 26% lower than in 2017.

80% of homes sold over their list price and the median percent of list price received was 113% in February.

Condo/Loft/TIC’s:
The three-month rolling average median sales price of $1,096,667 is up 3.13% over last year’s.

Year-to-date, new listings are down 14% while sales were up 9.2%.

February’s inventory of 1.9 months is 30% lower than in 2017.

59% of homes sold over their list price and the median percent of list price received was 103% in February.

January Market Report – 2017 in Review

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2017 saw two foundational trends continue in the San Francisco real estate housing market. Prices continued their trend upward while inventory continued its trend downward. It marked the sixth straight year for higher sales prices for both single family homes and condo/loft/TIC’s.

Two changes, one already implemented and one in the making, may have a significant impact on the housing market, in San Francisco and across the country. First, the tax changes may impact buyer behavior with the reduction in deductibility of mortgage interest and possibly state income taxes and property taxes, with the latter two still up in the air.

Second, the projected three hikes in the federal funds rate by the Federal Reserve are anticipated to result in mortgage rate increases of ½ to ¾ percent by the end of 2018. Additional factors will affect mortgage rates so it’s impossible to predict where they’ll end up and how they’ll get there. No expert expects them to stay as low as they are currently.

Single Family Homes:
2017’s median sales price is up 12.2% from 2016.

There were 5.5% fewer new listings in 2017, and 1.5% more sales.

Inventory ended 2017 down 31% from 2016, the lowest level in 10 years

78.7% of homes sold over their list price and the median percent of list price received was 113.4% for 2017.

Condo/Loft/TIC’s:
2017’s median sales price is up 9.3% from 2016.

There were 6.2% fewer new listings in 2017, and 3.4% more sales.

Inventory ended 2017 down 24% from 2016, the lowest level in 3 years.

59.5% of homes sold over their list price and the median percent of list price received was 101.9% for 2017.

San Francisco Real Estate Market Update: December 2017

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The November San Francisco real estate market moved along pretty much as expected, with continued low inventory and the majority of properties selling above list price. Condo prices hit an all-time high of $1,230,000.

The proposed tax changes are very likely to affect future buyer behavior as they lose purchasing power with the loss of full deductibility of state income taxes and property taxes. That loss of purchasing power will likely dampen sales price increases. Stay tuned…

Single Family Homes:
November’s median sales price eased off a bit from October’s all-time high of $1,588,000, down to $1,500,000. However, prices are still up 10.7% compared to last year.

While new listings typically fall off in November, this year’s were exceptionally low at just 112, 19% fewer than last November. The number of new listings on the market year-to-date is down 5% from 2016 while the number of sales is up 4.2%. Inventory remains very low at a 1.4 months supply, the lowest level since December 2016.

The incredibly tight supply coupled with strong demand kept the level of overbids high as well, staying at 115%, much higher than last November’s 107%. 81% of single family homes sold above the list price.

Condo/Loft/TIC’s:
As mentioned above, the median sold price hit an all-time high in November. On a three-month rolling average, the median sold price is up 7.7% compared to last year.

Inventory is down 23% from October and 19% compared to November, 2016. Like single family homes, the number of Condo/Loft/TIC listings are down year-to-date compared to 2016, by 5.6%, while sales are up 3.2%.

59% of condo/loft/TIC listings sold above list price, down from 67% in October and 64% last November. The median overbid was 102%, the same as last November.