The Lull Before the Fall Storm

July and August are traditionally slow real estate months as agents prepare properties for sale in the Fall and both sellers and buyers take some time off for a holiday. Nevertheless, we can try to get an advance look at the direction of the market by looking at July's numbers. Price appreciation last month continued to slow, up to a median of $1,165,000 for all properties, which is 1.3% over last year. But single family homes shot up 6.6%, while condos/TICs/coops were up only 1%. This may reflect basic supply/demand issues, as single family home inventory was down compared to last July by almost 6%, while condo inventory was up a whopping 18.8%. Particularly for apartments this presents an opportunity to buy without the intense competition seen in recent years.

Other indicators provide a mixed picture. For example, the average number of days on the market continued to edge up now at 27 days, reflecting less-frenetic sales activity. This is quite a bit more than last July's 19 days after the hyperactive Spring 2015 market. For perspective, however, July 2014's days on market statistic was 25 and there was certainly no market crash after that. And new listings, which normally shoot up when sellers believe a price peak has been reached are actually way down, more than 25% lower than last July. So stability, in contrast to the extreme seller's market of the past few years, is still the best read on the current market.

2-4 unit building sales paused in July, with a median price of $1,600,000, exactly the same as last July. Days on market increased from 27 to 34 days. But just like with other residential types, there is no flood of inventory, which is actually lower than last year. After the price gains of the past few years, this pause before the Fall market is understandable as stability, not collapse.

Median prices in the city's ten districts tell a confusing story. District 7 (Marina, Pac Hts), the most expensive shot up as did District 3, in the southeast corner of the city and the second least expensive (12.5% and 11.4% respectively). Districts 2 (Sunset), 6 (Hayes Valley, Western Addition, Lower Pac Hts), 9, (SOMA, Mission, Bernal, Potrero) and 10 (Bayview, Excelsior, Portola) all showed modest appreciation between 1.3 and 4.3%. All those districts are in the middle of the median price scale (between $1.1 and 1.3 million), except for District 10 which is at the bottom ($790,000). The only other mid-priced area (District 8-Civic Center, Downtown, Russian/Nob Hills) declined 2.9% to $1,107,500. The second most expensive tier, District 1 (Richmond), 4 (West of Twin Peaks) and 5 (Castro, Haight, Noe Valley) all declined with the biggest loser being District 1, down 8.1% and now only about $100,000 cheaper than the Sunset across Golden Gate Park. (All district statistics are rolling 3 month averages to mitigate for small numbers of sales in any particular month, with percentage changes year over year.)

So we remain in a transition period between the very rapid appreciation of 2014 and 2015 to a more modest pace while the market absorbs the new higher prices. Does this mean prices will go down in the Fall or will rapid appreciation return? No one knows for sure, but there is little evidence to support a significant decrease in prices, most importantly no significant upswing in inventory. More than ever, the advice of a full-time agent with knowledge of the market dynamics on the ground now is essential. If you are wondering how much your property might sell for now, in the Fall or next Spring, or if you are thinking of buying and wondering if you should wait, give me a call to discuss. More statistics, updated constantly, are at

Foreign Buyers

We hear a lot about foreign buyers of US real estate. Do they push up prices significantly? Do they "park" their money in empty high rise apartments, resulting in "dead" areas? Is that money "dirty" - a stemming from criminal or corrupt activity overseas? On the other hand, do these investors enliven the city by contributing diversity and new ideas from abroad? Do their investments help to create jobs and wealth in our economy, benefitting all? We probably cannot answer these questions with any certainty, but at least we can try to get a more realistic view of how many foreign sales there are and to who.

We first have to understand that there are actually no exact statistics on foreign buyers because no one is required to disclose their citizenship status in a purchase and no one is required to record that information. However, the National Association of Realtors surveys its members and estimates that around 8% of sales nationwide are to foreign buyers. But those are concentrated in a few areas, including South Florida, California, Texas, Arizona and New York. So, certainly foreign buyers make up a significant share (some say 20%) of sales in San Francisco.

Second, we should draw a distinction between resident and nonresident foreign buyers. Although the share of the market to all foreigners has held more or less steady for several years, resident foreign buyers (those living in the US, but with foreign citizenship) increased their purchases in the past year, while nonresidents decreased. About 41% of foreign sales are to nonresidents now (they were more evenly split before). This may reflect the increasing prices nonresidents face due to appreciation in the US market and their currencies' falling value versus the dollar. Or it may be a result of increasing regulation of money exportation in certain countries, particularly China. (Chinese buyers account for over 1/4 of all foreign buyers nationwide.) Or it may just reflect the fact that more people are coming to the US to live without immediately gaining citizenship as a result of the "global economy" or the US's relative economic health in recent years.

With respect to prices, some believe that cash purchases are more likely to push prices up faster. Although we do not know that, we do know that foreigners are more likely to buy with cash (about 50% do), but a big share of all real estate sales are cash (25%) and cash sales in San Francisco are only slightly more common than elsewhere across the board (less than 30%) so it would seem that our foreign buyers are not driving that trend here. Although foreign buyers tend to buy more expensive properties, resident foreigners are less inclined to do so - as their share increases, foreign sales move toward the average price.

Is some foreign cash being "laundered" through real estate sales? Again, we cannot tell for sure, but new regulations, effective this month in San Francisco, require title companies to report all cash purchases above $2 million by "shell" companies with the name of the person behind the company. The idea is that the US Treasury Department can use that information to try to trace funds and determine whether they are legitimate. Since the program is new we have no information as to its effect.

Given the volume, it is unlikely that foreign sales will stop anytime soon - no surprise since US real estate is one of the most solid investments in the world, perhaps nowhere more than here in San Francisco. And a healthy US economy and culture has always been a reflection of our welcoming attitude toward those who want to live and work here, wherever they were born. Perhaps nowhere is this more true in San Francisco, with a 35% foreign-born population (in 2010). More details herehere and here.

Streets Are Made For Walking

Many urban areas have begun pedestrianizing certain streets formerly reserved for vehicular traffic. The idea is that making it easy and safe to walk can decrease emissions, improve the travel experience and activate urban areas by inviting people to spend time in a place. Large areas of a number of cities in Europe, Latin America and Asia have been pedestrianized for years and it has caught on in a few places in the US, like Times Square in New York. But what about here?

The city already has a program to activate certain parts of the roadway, the most common example being small parklets that take up a few parking spaces and essentially widen the sidewalk to provide outdoor public seating. Some alleys have also been closed to most traffic, think Maiden Lane off Union Square and other streets have been narrowed to increase areas reserved for walking (and biking), for example Castro Street between Market and 19th and the narrowing of Mansell Street from 4 to 2 lanes as it crosses McLaren Park.

But now there is a proposal to close off a major street, Stockton from Market to Geary in the Union Square area. The street has been under construction for the new Central Subway that will run from King Street to Chinatown. To help local merchants the subway construction has been halted in recent years during the holiday season and Stockton turned into a temporary car-free rest area with artificial turf and seating - all quite popular. Now at least some merchants have asked that the car-free zone be made permanent to encourage economic activity and make Union Square more enticing as a shopping destination. But Stockton is a major connector from the freeways, SOMA, and the Market corridor to Union Square and Chinatown and some have cried foul over the plan, arguing that the vehicle route has to be restored as soon as possible. The proposal is new, so we will have to wait to see how the arguments play out, perhaps with a compromise such as narrowing the roadway to give more - not all - space to walkers. Details here and here.