February 2014 San Francisco Market Report

It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts. From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, 3 or 4 are coming in now; where 3 or 4 offers would have arrived, the seller is getting 1. And, according to Broker Metrics, for every 2 listings that accepted offers in December and January, another listing expired or was withdrawn without selling.

The amount of competition deeply affects home price increases.

There are still a very large number of buyers looking at listings online and at open houses. But more of them appear to be first-time buyers and they are proceeding more cautiously. Some buyers are burned out on the multiple-offer bidding frenzies of last year and are reluctant to participate in them. Though the market remains hot by any reasonable standard, by some statistical measures it is cooling. This may reflect a transition or only a lull before the spring sales season begins.

Recently, the investment-property analysis firm Reis speculated that SF apartment-rent growth -- which has been extraordinary by any measure, especially in a period of low inflation -- will slow despite intense demand and very low vacancy rates, simply because people can't pay any more. It's an idea which may or may not be correct or apply to other types of housing costs. Rent rates do play a role in purchase prices as buyers often compare the net housing costs of the two options.

Median Sales Price Appreciation by Neighborhood

In San Francisco, some of the most affluent neighborhoods -- such as the Pacific Heights-Marina district and the Noe, Eureka and Cole Valleys district -- started their recoveries in the second half of 2011, well before virtually every place else in the city or country. When 2012 began, prices in these districts soared, while other areas played catch up. In 2013, that dynamic flipped: Appreciation rates in comparatively less expensive neighborhoods surged, while slowing in the most affluent areas.

A big part of this is simple affordability: Priced out in one neighborhood (or city), buyers focused on others, similar in ambiance but less costly. Home prices there looked so good in comparison that buyers were willing to bid them up. The huge decline of distressed sales in areas severely affected, such as in Bayview, has had an outsized effect on median sales prices there. Continuing gentrification, as in the Mission, and increasing "luxury" condo construction in less affluent areas have also played parts in this trend. It's not as if demand plunged in the Pacific Heights-Marina district (or Noe Valley, for that matter). Quite the contrary: its 9% appreciation rate in 2013 translated into the city's largest median price increase in dollar terms ($300,000). However, in the previous year, this district saw year over year median price appreciation of 25%.

Note that median price appreciation does not perfectly correlate to changes in home values, as it can be affected by a variety of market factors. It does give an approximate sense of market trends.

Percentage of Sales Price above Asking Price

As the market turnaround began in earnest in early 2012, two trends emerged: 1) increasing percentages of sales without any previous reductions in list price, hitting a whopping 90% of sales in May 2013, and 2) sales prices exceeding asking prices by escalating percentages, hitting an incredible average of 9% over list price in June of last year. Both of these highs reflect the ferocious spring 2013 market frenzy. Since then, these statistics dropped, stabilized and have now dropped some more. One shouldn't make too much of a month or two of data, and it must be noted that the January numbers -- 81% of sales occurred before any price reductions, at an average of about 4% over list price -- would signify a red hot market at any other place or time, but they are significant drops from those predominating last year. We won't know whether it's a seasonal blip or the beginning of a major shift until the spring selling season gets underway.

Please call or email if you have any questions or comments regarding these analyses.

Statistics are generalities that sometimes fluctuate without great meaningfulness and may be affected by a variety of seasonal, inventory and economic factors. How they apply to any particular property is unknown without a specific comparative market analysis. All data from sources deemed reliable, but may contain errors and is subject to revision.

© 2014 Paragon Real Estate Group