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Quarterly Real Estate Report Q2 2015
Steven M. Gothelf
Broker Associate
San Francisco
Q2 Market Pulse Video
Get a high-level look at what’s happening and what to expect in this insightful report into the San Francisco real estate market.
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San Francisco: Q2 Results
San Francisco’s red-hot real estate market continued to sizzle during the second quarter of 2015. It was a fantastic market for sellers: Available single-family homes and condominiums were in short supply at all price ranges, and a substantial majority of properties for sale received multiple offers. The result? Most sales prices topped asking prices, in some cases by wide margins. Typical of this was a San Francisco home offered at $850,000 that sold for $1.15 million.

Although San Francisco remains a challenging market for buyers, there still were deals to be found — particularly with the help of a savvy real estate professional. But buyers had to move fast, as it wasn't uncommon to see attractive, fairly priced properties go under contract just days after appearing on the market. Sellers, meanwhile, faced a dilemma: Putting their homes on the market instantly placed them in the same position as buyers — scrambling to find their next home. The solution for many sellers was to negotiate a rent-back agreement with the buyer, giving them extra time to search for a new home.

Looking Forward: Sales typically ease up during the summer, but don’t mistake a less-frenetic pace for a sea change in the market. With a booming local economy and interest rates still near record lows, there will be no shortage of San Francisco buyers for the foreseeable future.
Median Sales Price
The median sales price represents the midpoint in the range of all prices paid. It indicates that half the prices paid were higher than this number, and half were lower. It is not the same measure as “average” sales price.
Single-Family Homes — Median Sales Price
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Condominiums — Median Sales Price
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Months’ Supply of Inventory
The months’ supply of inventory is a measure of how quickly the current supply of homes would be sold at the current sales rate, assuming no more homes came on the market. In general, an MSI below 4 is considered a seller’s market; between 4 and 6 is a balanced market; and above 6 is a buyer’s market.
Single-Family Homes — Months’ Supply of Inventory
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Condominiums — Months’ Supply of Inventory
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Average Days on the Market
Average days on the market is a measure that indicates the pace of sales activity. It tracks, on average, the number of days a listing is active until it reaches “pending” status, meaning all contingencies have been removed and both parties are just waiting to close.
Single-Family Homes — Average Days on the Market
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Condominiums — Average Days on the Market
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Percentage of Properties Under Contract
Percentage of properties under contract is a forward-looking indicator of sales activity. It tracks expected home sales before the paperwork is completed and the sale actually closes.
Single-Family Homes — Percentage of Properties Under Contract
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Condominiums — Percentage of Properties Under Contract
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Sales Price as a Percentage of Original Price
Measuring the sales price as a percentage of the final list price, which may include price reductions from the original list price, determines the success of a seller in receiving the hoped-for sales amount. It also indicates the level of sales activity in a region.
Single-Family Homes — Sales Price as a Percentage of Original Price
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Condominiums — Sales Price as a Percentage of Original Price
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Delving into San Francisco’s Districts
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3 Factors Contributing to Bay Area Home Sales Declines
Demand for San Francisco Bay Area real estate has arguably never been more intense, as highly paid professionals flock to the region to take advantage of an excellent job market. But a look at the number of single-family home sales across the Bay Area for the first half of 2015 shows that, for the most part, units sold have been slowing for the past year.

According to MLS data, single-family home sales dropped in six of Pacific Union's nine Bay Area regions* in the first half of this year compared with the same period last year. When comparing this year's first-half sales with 2013's, the pattern becomes even more consistent, with all regions displaying a decrease in the number of homes sold. The two-year declines were largest in western Bay Area counties, where many of the nation's most desirable jobs are located. (Complete units-sold numbers can be found in the charts below.)

So what's causing the drop in sales at a time when so many people want to own a home in the Bay Area? Pacific Union CEO Mark A. McLaughlin believes that three major factors are at work.

“A slim supply of homes for sale and an increase in the number of off-market sales are certainly the largest drivers of the decline in units sold as recorded by the MLS,” he says, “but fewer move-up buyers in the market also impacts sales.”

Inventory Shortages

Anyone who follows Bay Area real estate is likely familiar with one of our housing market’s major challenges: fewer homes for sale than people that want to buy them. The situation hasn't improved over the past year, with the months' supply of inventory (MSI) for single-family homes sold being lower in June of this year than it was in June 2014 in all of the Bay Area regions in which Pacific Union operates.

An MSI between 4.0 and 6.0 months is generally considered to indicate a balanced market, with lower numbers favoring sellers and vice versa. In June, the MSI across the Bay Area ranged from 0.7 in the Mid-Peninsula region to 2.8 in Napa County, meaning that all of our markets seem to favor sellers.

In Silicon Valley and the Mid-Peninsula, where home sales have declined by double-digit percentages from the first half of 2013, a lack of inventory is a key factor slowing sales, according to David Barca, vice president of those two Pacific Union regions.

“Certainly, if there was more inventory, there would be more sales,” he says.

An Absence of Move-Up Buyers

A lack of homes for sale means that many move-up buyers are sitting on the sidelines, as they are unsure if they will be able to find a new home once they sell their current property. Barca says that in Silicon Valley, one of the nation's most in-demand housing markets, even buyers with plenty of equity and money are staying put.

Both Pacific Union President Patrick Barber and Marin County Region President Brent Thomson cite reduced activity by move-up buyers as a contributing factor to sales declines on both sides of the Golden Gate Bridge. Barca also notes that first-time buyer activity is particularly low in expensive Silicon Valley — except for the young fortunate professionals that play important roles in local tech and social media companies. Otherwise, young first-time buyers may need to rely on parents or relatives who can assist with the down payment.

Another reason that some move-up buyers might be staying put is the impact of federal and state taxes on the seller. The tax-law changes of 2003 provide for capital-gains exemptions of up to $250,000 for single sellers and $500,000 for those who are married. Price appreciation over the past few years has been significant in the Bay Area, and the associated tax impact may give some move-up buyers enough motivation to stay in their existing home and remodel it.

McLaughlin believes that tightened credit markets could also be hindering move-up buyers, as some would not qualify for as large of a mortgage as they did when they purchased their first homes.

An Abundance of Off-Market Listings

While a multiple listing service (MLS) is still the most common way that real estate professionals market their clients' homes, some clients may decide that the best course of action -- for privacy or confidentiality reasons -- is to keep the property out of the public eye. According to an analysis of sales data prepared by Pacific Union's Menlo Park office, private transactions account for about one-third of sales in some San Mateo County enclaves, another factor contributing to the apparent decline in sales volume.

In the combined communities of Menlo Park, Atherton, Portola Valley, and Woodside, off-market sales represented 21 percent of all transactions in the second quarter of 2014. That number increased to 24 percent in the third quarter and 29 percent in the fourth quarter. Private deals rose again in the first quarter of 2015 to 35 percent before relaxing to 30 percent in the second quarter.

Off-market deals have likely also played a role in the slippage of home sales in San Francisco. In a 2014 report, the San Francisco Association of Realtors estimated that private transactions represented 11 percent of home sales in 2013, and Barber speculates that that number has likely since increased.

Pluses of off-market sales include protecting the seller's privacy and avoiding the work associated with holding open houses. However, it's important to note that SFAR found that homes not listed on the MLS in 2013 sold for an average of 17 percent less than those that were. Whether or not to make their home available to the public is a decision that sellers should carefully consider and discuss with their trusted real estate professional.

* For more information on how Pacific Union defines our individual Bay Area regions, please refer to the charts found in our Q2 2015 quarterly report.

Review the Latest Bay Area Data & Stats
Bay Area 10-Year Overview
Here’s a look at home sales in the Bay Area’s real estate markets in the second quarter of 2015, with a glance back at the 10 preceding second quarters.
10 Year Chart
Click here to see specific 10-year data on key cities in the Bay Area.
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Steven M. Gothelf
Broker Associate
1699 Van Ness Avenue
San Francisco, CA 94109
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