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Quarterly Real Estate Report Q4 2015
Steven M. Gothelf
Broker Associate
THE MARKET IN UNDER A MINUTE
San Francisco
Q4 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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NEIGHBORHOOD DATA
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San Francisco: Q4 Results
San Francisco has been a seller’s market for several years now, but by the fourth quarter of 2015, the landscape had slightly shifted in the direction of a more balanced market — for both condominiums and single-family homes. Sales prices kept rising, to be sure, but not at the pace of past quarters. And while many homes still commanded multiple offers, overbids have also slowed. Available homes stayed on the market a bit longer than in previous quarters before going into escrow. December closed out a very strong quarter, though the third quarter was stronger.

But this may be the most surprising fact: More than a few San Francisco homes sold for below their asking prices in the fourth quarter — a phenomenon virtually unheard of at the start of 2015. The inventory of available homes remained tight, but we saw signs that owners are gradually more willing to put their homes on the market.

Looking Forward: San Francisco remains an exceptionally desirable market with a booming regional economy — two factors that ensure strong real estate activity in the months ahead. El Niño storms could delay some sales, but only briefly, and interest rates are forecast to remain exceptionally low far into 2016.
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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FEATURE STORY
San Francisco County Housing and Economic Forecast Through 2018
SAN FRANCISCO COUNTY (SAN FRANCISCO MSA)
The movement of tech/software firms into the city attracting urban-oriented workers and the ongoing activity of overseas investors looking for opportunity have pushed San Francisco’s home prices ever higher. Though San Francisco will always be one of the most desirable, and thus one of the most expensive, places to live in the world, any substantial slowdown in the tech sector would have an almost immediate negative impact on prices.

Economy

  • Great Job Growth: San Francisco County has long been the financial center of Northern California, but is now also a tech/software hub. It is the most concentrated jobs node in the Bay Area with nearly 640,000 employed and over 86,000 net new jobs added over the last three years (2012-14). We project continued solid job increases through 2017, 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 — are key and have experienced tremendous growth over the last three years. These sectors added over 68,500 jobs MSA-wide from 2011-2014.
  • Highly Employed Population: Only 3.2 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 $80,200, though wealth disparities remain. Wage growth has been strong since 2012 and is projected to remain on an upward trend through 2018.
Click to view a larger chart
Demographics

  • Steady Growth Ahead: San Francisco County is approaching a population of 863,000 and has over 362,000 households. Recent growth has been fairly strong for such a small and mature market, and is expected to grow steadily over the next few years.
  • By the Numbers: Growth projections translate into 8,500 to 10,000 new residents annually in San Francisco County, or about 4,500 to 4,900 new households each year. Household sizes are typically smaller than the norm in more suburban areas.
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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 is up 6.9 percent over the last year. We expect appreciation to slow in coming years, particularly by about 2018.
  • Consistent Resale Volumes: There have been over 5,500 resales in San Francisco County over the last 12 months. At the MSA level, we forecast annual sales growth of 1-2 percent in 2016 and 2017.
  • Investors Still Here: San Francisco MSA investor activity has gradually receded, but remains at about 21 percent, down from a high of over 24 percent in early 2013. While never reaching 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 notably from China.
  • Affordability Decreasing: Though mortgage rates remain historically low, the San Francisco MSA’s current affordability level is considerably worse than its long-term norm. Within San Francisco County, a household earning the median income would need to pay 87 percent of their income to buy a median-priced resale home and 80 percent for a 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 level of potential supply and a ton of supply on the way near-term, but demand is massive and supply was stagnant for years. These conditions, combined with high incomes, mean new home prices are always high despite small home sizes and high densities. Over the last 12 months, new home prices have fluctuated wildly depending on what sold in any given month, but have centered just above $1,100,000. This compares to a new home median for 2014 of $1,038,000 (current is up 6 percent).
Click to view a larger chart
Market Color

  • Supply Relief: By one account, there are over 1,300 condominiums under construction in San Francisco and over 4,000 new apartments. This alone will be a comparatively major increase in the city’s supply. There are also, however, another 6,750-plus condos and over 6,200 apartments either approved, under review, or in the conceptual stage, and thousands more units with a less certain status. Given the nature of high-density urban development, anything not being built could vanish overnight, but this is still a tremendous amount of supply. This activity represents a massive collective bet in the continued good fortune of San Francisco.
  • Construction Begins at SF Transit Center: A new Transbay development will help revitalize public transit. Construction has started on a transit center just south of the Financial District. Plans call for the 1 million-square-foot facility to accommodate 100,000 passengers daily. The area encompassing the center will feature 4,400 new housing units, 1,200 of which will be at affordable pricing.
  • Rents Continue to Surge: With affordability worsening in the for-sale sector, people are flocking to the rental market. The average rental price in the San Francisco MSA is currently $3,015, an increase of 9.2 percent year over year, and nearly double the average rent in 2004 of $1,594.
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Steven M. Gothelf
Broker Associate
415.345.3063
sgothelf@pacunion.com
www.SteveGothelf.com
1699 Van Ness Avenue
San Francisco, CA 94109
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