Year End Summary - Return to Normality

This year was a year of consolidation in the real estate market in San Francisco. Prices continued to climb but at a slower pace than the last few years and depending on the specific type of property and area there were some corrections. Below I summarize how the year went statistically. But it is also helpful to look back at the past few years to determine trends. With that long view, 2016 appears to be a plateau year  - a "normal" market where both buyers and sellers have some market power - following several "crazy" seller's market years. Evidence of a "crash" or "bubble burst" is not there, but rather the statistical picture shows that San Francisco's residential real estate market is solid and sustainable at current prices and could easily accommodate steady appreciation over the next year.

In citywide statistics for all properties over the last 3 years, this general trend is apparent. Prices surged in 2015 by 16% ($993,000 in 2014 to $1,150,000 in 2015), but 2016 saw only a 4% increase to $1,195,000. Of course, at the much higher price levels the market had already reached, even a 4% increase is significant in dollar terms. Prices per square foot were up $100 from 2014 to 2015, but increased by $20 in 2016. Other statistics followed this normalizing trend, with days on market declining over 10% in 2015 (to 20 days) but now back up to 26 days this year, just slightly more than 2014. More properties sold over the list price and exceeded the list price by more in 2015 than either 2014 or 2016. Inventory also increased this year but is still remarkably low - lower than the inventory for the entire period from 2006-2012, which includes the pre-recession, recession and post-recession time period. Normally, when the market appears to be "turning" from rapid increase to a plateau, sellers rush into the market to capture the peak prices, but the number of active listings on the market (about 1030) and the month's supply (the number of months it would take to sell through the existing inventory - 2.4) have edged up just a little since 2014. So it appears sellers are not very worried about declining prices.

Single family houses faired significantly better than apartment units. Homes continued to appreciate in 2016, with the median price hitting $1,325,000, up 6% - on top of the nearly 17% increase between 2014 and 2015. But condos/TICs/coops were slightly down this year after a big leap in 2015. From a median price of $940,875 in 2014, apartments shot up 16% to $1,095,000 in 2015 but stayed close to that same level through 2016 ($1,085,000). Apartment buildings (2-4 units) showed steady appreciation over the three year period, from $1,450,000 in 2014 to $1,580,000 in 2015 and landing this year at a median price of $1,650,000. 

My explanation for these overall trends is that we remain in a seller's market but buyers needed this year to absorb the higher prices. In essence, people need time to adjust their thinking and to become comfortable that San Francisco's market is now at a permanently new (higher) level. Single family houses continued on an upward trajectory because they are a rare commodity - essentially no new houses (other than replacements) are built in the city, while demand from a growing population continues to escalate. Condominiums, on the other hand, are subject to an increasing supply and this year quite a bit of new construction came on-line, causing a flattening of prices. But the apartment pipeline for the next several years actually will decline as the pent up projects from the pre-2012 "lean" years are played out. Assuming demand remains steady (or increases) condo prices should start to creep up again eventually.

This was also an election year with a particularly polarizing set of candidates, much media coverage of a "revolution" in politics and a surprising outcome. People need time to understand the new reality of a new administration. The result was an unusually slow Fall market. Feeding into this lack of certainty, the booming economy of the Bay Area invites talk of a "burst." Economic cycles are a clear feature of the Bay Area economy and some parts of the area (even some parts of the city) are subject to speculation and subsequent downturn. But there is no evidence of a collapse.

Those waiting for prices to decline so they can steal a "bargain" will likely miss out. Rather, the fundamentals clearly favor continued appreciation. High (and growing) demand for housing, constrained supply as a result of geographic and political factors, high employment in growing industries, historically low interest rates (although up a bit recently) and a desirable environment generally -- remain the same. We have been on a steady (or, at times, dramatic) climb since 2012.  All indications are that basic economics will continue to drive San Francisco home prices up over the long run with little likelihood of any significant depreciation.That said, selling now captures the appreciation of the past few years and is worth considering as part of the planning of your investments and, more importantly, your life.

Below I address some of the neighborhood trends, but any snapshot of the entire market or even each district cannot substitute for a reasoned consideration of your particular situation. Moreover, real estate decisions are not tied exclusively to money. If your living situation does not meet your current needs it is a good idea to consider changing that situation, regardless of the latest market news. Advice from a full-time agent who is in the market every day all day is essential. If you are wondering how much your property might sell for in 2017, thinking of changing moving up, down or sideways, investing or changing your portfolio, or if you are thinking of buying (for the first time or the fiftieth) and wondering if you should wait, give me a call to discuss. More statistics, updated constantly, are at www.danslaughtersf.com.

Neighborhood By Neighborhood

San Francisco is a city of neighborhoods. Realtors divide the city into 10 geographic districts and then each of those contain as many as 16 subdistricts. Below I look at how the various districts faired in 2016 compared to the year before and with a few sub-district examples to show how varied and complicated our market is. Since I cannot cover everything in this newsletter, please feel free to contact me about your neighborhood or any you are interested in. And also take these statistics with a grain of salt; one big (or small) sale in a district or, especially, a sub-district can make a big difference in these numbers because there are not that many sales in each area. 

First, let's look at the most expensive districts. District 7 (Pac Hts, Marina) is, and has been for many years, far more expensive than any other area. But as prices have escalated the differences have become smaller, percentage-wise. In 2016, District 7's median sale price was $1,855,000, up 2.5% from 2015, which was 4.4% higher than 2014. The second most expensive area is District 5 in the center of the city (Haight, Castro, Noe and Cole Valley), which topped out at $1,505,000 this year - 3.2% appreciation on top of the 8% increase in 2015. So District 5 has moved from being 28% cheaper than District 7 two years ago to only 23% lower now. 

Another interesting comparison is District 1 (Richmond) and 2 (Sunset). Both are foggy areas on the western edge of the city straddling Golden Gate Park. Both have a lot of single family homes, but a fair mix of apartment buildings as well. District 1 includes tony Sea Cliff and the Lake District and traditionally has traded at much higher prices. Indeed, in 2014, these areas were nearly $300,000 apart, but the difference narrowed significantly in 2015 to only $225,000. This year District 1's median price was $1,425,000 and District 2's $1,200,000; those numbers are both about $50,000 higher than last year, so the converging trend did not continue this year. Why? Perhaps as the market appeared to "plateau" buyers became less willing to bid up properties in traditionally less desirable neighborhoods. Or perhaps the Sunset just needs time to absorb its new-found cachè.

District 4 (West of Twin Peaks) is filled with suburban-style developments. It stuck with the overall trend of steady appreciation. After shooting up almost $250,000 in 2015, it rose only about $35,000 to a 2016 median price of $1,388,000. But that was not true across the district. Westwood Park rose 8.5% to a median price of $1,302,500, while Westwood Highlands just up the hill appreciated by only 0.7% to $1,420,250. Miraloma Park, Diamond Heights and West Portal all went up between 4 and 4.5%, while Forest Hill and Ingleside Terrace nearby actually declined. In general, the closer to transportation and a "walkable" commercial district, the better the appreciation, but no rule applies across the board. 

Districts 6 (Alamo Square, Western Addition, Hayes Valley), 8 (downtown, Civic Center, Russian/Nob/Telegraph Hill) and 9 (SOMA, Mission, Bernal, Potrero) all declined. This likely reflects the large number of condominiums/TICs/coops in these areas. The decrease this year was quite small, ranging from $38,000 to $70,000. And here again, some areas bucked the trend:  the Mission (up over 9% to $1,142,500) and Western Addition (up 16.5% to $932,500), Big losers this year were Russian and Telegraph Hill, down 15% and 35% (but note caveat above about small numbers of sales skewing these numbers).

Finally, the less expensive parts of the city in the Southeast and Southwest corners continued to appreciate, but at a slower pace. District 3 (Stonestown, Ingleside, Lake Merced) rose to a median price of $926,000, 7.6% higher than 2015, on top of the 20.6% appreciation in the previous year. District 10 (Excelsior, Portola, Bayview) went from $775,000 to $810,000 (up 4.5%), slowing from 2015's 14.6% increase. Again, this picture is not consistent; Oceanview appreciated 7.5% but Ingleside just to the north was flat. The Excelsior was up 10%, but Crocker-Amazon was flat. No obvious factor explains the differences between sub-districts, but the overall trend is consistent with continuing demand for housing almost anywhere in the city.

All of these statistics are only a guide of course. Your property (or one you are eyeing) might not be as comparable to the others in its district than those in nearby areas. When you are ready to make a move you need an analysis of your property that finds the comparable sales and adjusts price estimates for other nuances, like views, position on block and so on. Give me a call to discuss.