Pacific Union
Quarterly Real Estate Report Q4 2014
Steven M. Gothelf
Broker Associate
Properties for Sale    |    Neighborhood Data    |    Pacific Union Blog
San Francisco: Q4 Results
Real estate activity typically pulls back in San Francisco during the fourth quarter as buyers and sellers alike turn their attention to holiday planning, and such was the case as 2014 wound down. The seasonal slowdown helped keep the inventory of available homes exceptionally tight across all price points in the fourth quarter, and unit sales also decelerated. Coming after an exceptional year of strong sales and price appreciation that ranked among the highest in the nation, the slowdown was predictable – even beyond the expected holiday relaxation factor. Still, single-family homes and condominiums that were fairly priced sold quickly, with many receiving multiple offers.

Fourth-quarter sales activity was not as frenzied as in past quarters, but the positive economic fundamentals of the San Francisco market remain unmatched: one of the most desirable locations in the nation, an expanding job base, and economic growth that shows little sign of slowing down.

Looking Forward: The year 2015 should shape up to be another busy one for buyers and sellers. We expect to see inventory levels rise appreciably in the first quarter; sales prices will also continue to rise, although not likely at the pace seen in 2014. Mortgage rates hovered near record lows throughout 2014 but are likely to succumb to upward-force vectors in 2015 – an added incentive for buyers to close deals early in the year to lock in low rates.
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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The Forecasts Are In: Pacific Union Releases 2017 Real Estate Outlooks for 9 Northern California Regions
On Nov. 5, 2014, Pacific Union teamed with noted consulting firm John Burns Real Estate Consulting (JBREC) to deliver a first-of-its-kind, forward-looking report and presentation that offer a lens into the future of the Bay Area’s residential real estate market and economy.

In a live event at the SFJAZZ Center in San Francisco, which was simulcast live via the Internet and translated to Mandarin, we presented the factors that will shape the Bay Area and Lake Tahoe/Truckee real estate landscapes through December 2017. You can view a video of the entire event here.

Now for the first time, we are releasing the detailed writings for each of the nine Northern California markets in which Pacific Union operates. Highlights from the forecast and reports include:
  • The Bay Area’s housing market is currently the hottest in the United States, but prices are close to peaking.

  • Job growth is outpacing population growth across the Bay Area — our economy is generating exceptional, high-paying jobs.

  • There are very few new homes being built. In 2013, more homes were constructed in the Houston metropolitan area than in the entire state of California.

  • Affordability in the Bay Area ranges from 23 percent in San Francisco to 43 percent in Sonoma County.

  • As a result, the rate of annual price appreciation in the Bay Area will likely slow from its current rate of roughly 8 percent to 1 to 4 percent beginning in 2016.
The Bay Area is currently experiencing a perfect storm of hot market conditions, exceptional job growth, excellent income levels, and limited supply. Our outlook, explained in detail in this newsletter, illustrates slowing appreciation beginning in 2016, largely as a result of limited affordability.

We recognize that neighborhoods and homes are different. Our real estate professionals are ultraqualified to assist you in decision support by combining our real estate outlook with your investment criteria to help you navigate the current market. Please be sure to consult with your Pacific Union real estate professional for specific advice.

I truly hope your 2015 is off to a top-notch start.

Mark A. McLaughlin, CEO, Pacific Union
John Burns Real Estate Consulting
San Francisco County Housing and Economic Outlook
A surging tech employment base and a flood of activity from overseas continue to drive San Francisco’s home prices higher. While San Francisco emerges as one of the most expensive places to live in the world, and for good reason, the recent surge in prices concerns us that a slowdown in tech could indeed result in a slowdown in home prices.
The Economy
  • Great Job Growth: San Francisco County is the financial center of Northern California and increasingly a tech/software hub. It is the most concentrated jobs node in the Bay Area, with over 620,000 employed and over 55,000 net new jobs added over the last two years (2012-2013). We project continued solid job increases ahead, albeit at slower rates of growth.

  • High Pay Growth: For the San Francisco MSA as a whole (San Mateo, San Francisco, and Marin Counties), the higher-paying sectors — finance, information, and professional and business services — added over 44,000 jobs MSA-wide from 2011 to 2013. San Francisco specifically has become a favorite place for new software and tech companies with unparalleled urban amenities.

  • Highly Employed Population: Only 4.5 percent of the labor pool cannot find a suitable job.

  • Affluence: San Francisco County is very affluent, evidenced by its 2014 median household income of $78,100, though wealth disparities remain. Wage growth has been solid for the last two years and is projected to remain solid to strong going forward.
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  • Steady Growth Ahead: San Francisco County is approaching a population of 850,000 and has over 360,000 households. Recent growth has been fairly strong for such a built-out, physically small locale, and is expected to grow steadily over the next few years.

  • By the Numbers: Growth projections translate into about 8,000 to 9,000 new residents annually in San Francisco County or about 4,000 to 5,000 new households each year. Household sizes are typically smaller than the norm in more suburban areas.
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The Housing Market
  • Prices Strong Then Slower: Our Burns Home Value Index (BHVI) estimates price appreciation for the entire resale market. Currently, the BHVI for the San Francisco MSA shows prices up 7.8 percent over the last year, and we expect 7 percent appreciation over the next four years.

  • Consistent Resale Volumes: There have been over 5,800 resales in San Francisco County over the last 12 months. At the MSA level, we forecast sales growth of about 3 to 5 percent for the next two years, but dipping to slight decreases in 2017-2018.

  • Investors Still Here: San Francisco MSA investor activity has slowly diminished, but remains at about 22 percent, down from a high of over 24 percent in early 2013. While never as high a market share as in more outlying parts of the region, investors still represent a healthy part of the market. Much of this is in the form of overseas money, most often from China.

  • Affordability Decreasing: Though mortgage rates remain historically low, the San Francisco MSA’s current affordability level is worse than its long-term norm. Within San Francisco County, a household earning the median income would need to pay 71 percent of their income to buy the median-priced resale home and 66 percent for the median-priced new home (the discrepancy due to far higher densities in the new home environment). Thus thousands of people working in San Francisco live elsewhere or rent.

  • New Homes Difficult to Find: San Francisco County has a tremendous amount of potential supply, but actual supply is typically constrained. Supply conditions and local incomes mean new home prices are always high despite small home sizes and high densities. Over the past year and a half, new home prices have fluctuated wildly depending on what sold in any given month but have centered in the high-$800,000s. This compares to a new home median for all of 2013 of $738,637.
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Market Color
  • Urban Publics: Some traditionally suburban-oriented big public builders like KB Home and Lennar are making inroads into the urban heart of San Francisco. KB Home will build a 74-unit midrise in the South Beach district and is looking for more sites in the city. Lennar recently opened its much anticipated 750-acre Hunter’s Point — Candlestick Point redevelopment in the southeastern part of the city. Lennar also has a major stake in the potential Treasure Island redevelopment. Trumark, a private builder also typically in more suburban locales, has multiple San Francisco sites lined up for building. The proposed Parkmerced redevelopment could add another 8,000 units as well.

  • Lowdown on the Waterfront: In June 2014, San Franciscans approved Proposition B, which gives them a greater say in the development of any future housing units along a 7.5-mile stretch of San Francisco’s waterfront. The measure requires voter approval for any new building on Port of San Francisco property that exceeds existing height limits of 105 feet. This is likely to lead to diminished development in the area. The most immediate result was that the Golden State Warriors terminated a plan to build an arena on Piers 30—32 and a mixed-used project at Pier 70 was reworked to lower the maximum height from 230 feet to 90 feet.
Bay Area 10-Year Overview
Here’s a look at home sales in the Bay Area’s real estate markets in the fourth quarter of 2014, with a glance back at the 10 preceding fourth 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
One Letterman Drive, Building C, Suite 500
San Francisco, CA 94129
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