Eric Geleynse
Tel:415.717.3355
eric@ggvalues.com
Lic.# 01413008
San Francisco Real Estate Update
FAST FACTS
For June 2010, the Median Selling Price (MSP) for both Single Family Residences (SFRs) and Condos in San Francisco were up sharply on both a month-over-month (M/M) and year-over-year (Y/Y) basis. For any given year, prices and sales volume are normally at their strongest from April through June but these numbers are a complete reversal from May, where both the M/M and Y/Y numbers were relatively flat but slightly negative. In short, June was a good month for sellers in San Francisco as prices ticked up noticeably compared to both the prior month and the prior year.
MSP %Change %Change
June 2010 M/M Y/Y
All SFRs $802,500 +6.9% +4.9%
All Condos $699,000 +3.6% +7.5%
CONTEXT
Real Estate prices in San Francisco and California hit their peak in May 2007 and have dropped significantly since then. However, prices in San Francisco did not drop by as much, or as soon, as they did statewide. For May 2010, the statewide median price for an SFR was down 45% from the market peak. For San Francisco, using June numbers, SFRs are down 17% and Condos are down 15% from their market peak.
Market prices began their decline on a statewide basis a full year before they began to decline in San Francisco. The low point for the market was January 2009 in San Francisco and February 2009 for California. In essence, the duration and depth of the real estate price declines were far more severe for California than they were for San Francisco.
LOOKING FORWARD
At the end of the first week of July 2010, the Unsold Inventory Index (UII) in San Francisco was 4.1 months (~18 weeks) for SFRs and 5.0 months (~22 weeks) for condos. The UII measures the amount of time it would take to sell all of the existing SFRs or Condos that are on the market now, based on the average monthly rate of sales for those properties over the last three years. This level of inventory, in relation to current demand, suggests a relatively balanced market for SFRs and a mild Buyer’s Market for condos. This is an improvement from late 2008 and early 2009, where an excess of inventory in relation to demand drove prices down aggressively.
Employment and housing affordability are two of the biggest factors on the “demand side” of the equation. There has been some improvement in the near term job outlook as indicated by recent surveys of Bay Area employers. Further, the recent decline in mortgage rates, back to their historic lows, combined with now lower home prices, has improved housing affordability in a meaningful way.
With the forward employment picture looking either neutral or modestly positive and affordability looking decidedly positive, the demand side of the equation suggest a modest but mildly upward bias on the forward price trend.
However, another key factor is seasonality. The San Francisco market was highly anomalous during the period from mid 2008 through mid 2009. During that time there were aggressive price and volume movements that overwhelmed the normal seasonal pattern.
When markets are relatively stable and prices are changing more slowly, we can normally see a fairly clear seasonal pattern within the monthly price and volume data. This can be described in simple terms: Prices and volume tend to increase in the spring and peak in May/June and decrease in the fall with a trough in December/January. The peak-to-trough delta can be as much as 4% – 6% on the median selling price. This is significant in a market where the MSP of an SFR is ~$800,000. Seasonality tends to have a bigger impact on SFRs than on Condos.
CONCLUSIONS
While some of the underlying macro-economic factors affecting supply & demand point to a mild upward bias for San Francisco, the return to a more normal, slower-moving market also means we are probably going see the return of seasonality in both prices and volume. This would suggest a flattening of prices over the summer with mild downward pressure in the fall. If correct, this will counter act the mild upward bias created by low interest rates, improved affordability and more balanced inventory.
Overall, I expect the forward price trend to be relatively flat for San Francisco over the next few months and I cannot see a clear bias either upward or downward for the next six to eight months. This is not the case for the state-wide trend, where I see a decidedly upward bias for prices in the short term. (See California in Context.)
Normally the best time to buy is between November and February while the best time to sell is from April through June. However, inventory levels are usually at their lowest during the winter months because sellers understand the seasonal pattern and are motivated to wait for the more favorable spring season. While buying in the Spring/Summer may not be the best time in terms of price, it is usually the best time in terms of selection. Again, these seasonal price and volume trends are more pronounced for SFRs than for Condos.
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