Angles on a Changing Market
During the past 14 months we've seen the Chinese stock market crash, the oil price crash, Brexit, high U.S. financial market volatility, a slowdown in the Bay Area high-tech boom, and enormous election-related anxiety. It is difficult to tell exactly how these events may have affected real estate markets. Many of the forecasts I have seen are saying higher interest rates, higher inflation, coupled with some growth over the next 18 months.
San Francisco itself will probably stay stable, though we may not see as aggressive growth as we have over the past several years. Because interest rates will rise, now is the time to make a purchase or refinance to lock in while rates are still comparatively low. Interest rates jumped up after the election, and most likely will continue to go up and could outpace inflation.
The six weeks from mid-September to Halloween constitute the heart of the relatively short autumn selling season, with the market typically going into semi-hibernation from Thanksgiving through mid-January. (Sales still occur during this period, though, and it can be an excellent time to buy with due to a big drop in competition.)
Generally speaking, this autumn experienced further cooling in SF market condition. October saw declines in sales activity, significant increases in price reductions, and listings expiring without selling. Condos appear to be most affected on all these counts, with some decline in condo values. This situation is certainly being exacerbated by new condo projects coming on market at the same time that buyer demand has been softening.The market for single-family residences has continued to see declines in listing inventory and to shrink as a percentage of total home sales, thus becoming a scarcer commodity.
However, despite significant affordability issues and the transition to less heated market conditions - as illustrated in the analyses of this report - so far, we have seen no sign of anything approaching an impending crash in our local market.
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Median sales prices usually jump in autumn, to a large degree because of the seasonal increase in luxury home sales, and that is what happened in October. The combined house and condo median sales price was up 6% from October 2015, but substantially unchanged from the previous peak median prices achieved in spring 2015 and spring 2016.
Bay Area Case-Shiller Home Price Index Recent price changes by property type and price segment Case-Shiller Index numbers all refer to a January 2000 price of 100, and track appreciation since then. Thus 243 on the chart signifies a price 143% above that of January 2000.
As mentioned in earlier reports, the highest pressure of buyer demand has shifted in the past year toward more affordable homes, and that is now showing up in the different price movements of low, middle and high-price tier houses. The Case-Shiller Index does not measure median sales price changes, but has its own special algorithm to determine same-home appreciation. This short-term chart illustrates how lower-priced houses have continued to appreciate rapidly, while mid-price and high-price houses have recently more or less plateaued, and condo prices have declined. The Bay Area Index for August 2016 was published in late October.
Chart: Long-Term, Case-Shiller Bay Area Home Price Trends
Link to our complete S&P Case-Shiller Index report
San Francisco Luxury Home Sales
Houses of $3 million+/ Condos, Co-ops & TICs of $2 million+
This report will generally consider houses selling for $3m or more, and condos, co-ops and TICs selling for $2m or more, as constituting the luxury home segment in the city. They total just under 10% of total home sales. For the ultra-luxury designation, houses are bumped up to $5m or more, and condos, co-ops and TICs to $3m or more. These price segments total 2.6% of total home sales.
Pursuant to a big jump in new high-end home listings in September, luxury house sales in October, suddenly hit their highest point in many years, if not ever. This is illustrated in the red line in the chart above. Luxury condo sales reported to MLS, as seen in the blue line, were higher than in October 2015, but far below peaks hit in previous spring selling seasons. However, this does not count new-project luxury condo listings unreported to MLS, which are playing an increasingly large role in the market and creating substantial competition for resale luxury-condo listings.
Below are 2 charts breaking out luxury home sales by city district.
Additional Chart: New high-end listings coming on market
Months Supply of Inventory (MSI): MSI measures how long it would take to sell the current inventory of listings for sale at the average annual rate of sale. All segments ticked up, indicating some market softening, but the general house market is still well within seller market territory. The biggest change is in the luxury condo market, where inventory has been hitting new highs, while sales have generally been declining, thus putting the segment in buyer market territory. Again, these figures do not include the large number of new-project listings and sales unreported to MLS, which would probably increase the condo MSI readings.
Average Asking Rents by Bay Area County
Rent rates in San Francisco have been dropping in 2016 after peaking in 2015, with estimates of the decline generally running in the range of 3% to 6.5%, but with some city rental agents saying that certain districts have seen slumps of more than 10%. We believe there are 3 big factors at work: a rush of large, newly built apartment buildings coming on market; a softening of demand as hiring trends have fluctuated; and affordability issues that have caused more prospective renters to simply turn away from living in the city, their first choice, and look elsewhere. However, even with the recent decline, the city still has the highest rents in the country.
Link to our full Apartment Building Market report
Link to our full Rent Trends report