A New Boom or Just Boomlet?

All through 2016 we saw predictions of a "bubble" in the San Francisco real estate market that was about to "burst," driving prices down. There was never any clear evidence of such a decline, although the market did seem to lose steam in the second half of 2016. This was particularly true for condominiums where prices remained flat or even declined slightly throughout the Fall, and the "mood" at open houses was not as frenetic as before (but perhaps that had to do with other events). We do not have even the beginnings of Spring market statistics yet since most people place its beginning either after the Super Bowl or on March 1. And January statistics are not a reliable barometer, because they represent less than 1/2 the number of sales that typically occur during the other months. Anecdotally, however, there is a very different feel to the market than just a few months ago. Buyers have returned in droves, and well-presented properties are selling in multiple bidding situations way over asking. Is everyone bananas to think that prices can continue to rise? Is it a new boom, or just a temporary "boomlet"? Or are people simply hungry for a place to live, a slice of San Francisco with its uniquely advantageous position as the center of the technology industry, a bastion of progressive values, outstanding food and culture, and a great place to live despite the recent weather? At any rate, early indications are that optimism has returned to the market. We will see if it holds through to the Summer.

For all properties, sale prices were up 2.2% in January (year over year). For some perspective, note that from January 2015 to last month, prices are up 23%, from $925,000 to $1,139,775. Of course this is lower than October's $1,140,000 median price peak, but January numbers always go down as properties that had to be discounted in the Fall market finally sell. Single family homes continued to outpace apartments, up 7% year over year to a median of $1,250,000. Condo/TIC/coop prices declined year over year to a median price of $1,035,000. Still, that's 15% higher than in January 2015.

The inventory of available properties was quite low in January, lower than in any January since 2014. Single family home inventory was down 21% from last year, and 15% fewer apartments were also on the market. This may explain the more active feeling from the buyer pool - fewer properties means that they are crowded into the same open houses and feel a need to compete. Usually, low inventory also means quick sales but the properties that were on the market in January were there longer (52 days) than at any time since February 2012. This trend usually means a softening in prices is in the works, but apparently sellers are holding firm, as the median price is up, not down. All in all, our market continues to be healthy and strong.

2-4 unit buildings followed these same trends, except that the median price was down from $1,700,000 last January to $1,573,500 this year. Like other properties, the median days on market was up sharply from 49 days last year to 59. But crucially, inventory has collapsed from 49 properties available last January to only 25 now. If that statistic continues look for prices to turn up as there are always investors in the market who must find properties to defer taxes in a 1031 exchange, and for other reasons.  As always, small numbers of 2-4 unit sales skew these figures, as well as the fact that many sales of apartment buildings (and other commercial properties) are not reported through the MLS.

The different districts of the city diverged even more than usual in January. Several saw amazing price increases, in particular District 1 (The Richmond) up a whopping 40.3% year over year to a median price of $1,487,500 and district 3 in the southwest corner of the city which is usually one of the two least expensive areas, was up 27.8% to $1,200,000. That's higher than either District 2 (Sunset) or 9 (Mission, SOMA, Bernal, Potrero). The two perennial leaders, District 7 (Marina, Pac Hts) and 5 (Castro, Noe Valley, Haight, Glen Park), showed healthy gains of 10.2 and 7.8 percent and appeared to be in no danger of losing their standing.  

Three districts lost substantial ground including District 4 (west of Twin Peaks) down 9% to $1,253,500, District 8 (Downtown, Civic Center, Russian/Nob Hill) down 10.2% to $975,000 and District 9 (Mission, SOMA, Bernal, Potrero) down 10.1% to $1,005,000. The rest of the city was fairly steady with small appreciation or depreciation below 4%. Of course, with low numbers of sales in January, all these statistics should be viewed with skepticism. (All district statistics are three month rolling averages, to mitigate for low numbers of sales.)

We await the Spring market sales to give us a fuller picture of where we are but certainly there is no sign of the long-predicted "burst" and instead some indications of a boom, especially in the inventory numbers. If you are thinking of buying or selling, or just curious about the market, give me a call so I can use my always up-to-date knowledge for you. 

High Speed Rail Progress

The Transbay Transit Center area is taking shape with soaring office and residential towers, bustling streets filled with people, a metal screen floating above the sidewalks and housing the terminal itself and a massive new park. But where are we on the bullet train that was slated to terminate there on 2 1/2 hour trips from Los Angeles?

First approved by voters in 2008, the rail project is slowly but surely making progress even while there are efforts to derail it completely. The first segment, connecting Madera with Bakersfield in the Central Valley, is under construction with bridges and viaducts being built, highways being moved and land being bought up and cleared. It is full steam ahead on that part of the project.

However, connecting that portion to the San Francisco Bay Area and Los Angeles basin has not yet begun. And the connection to our city is now under threat, as Republicans in Congress are trying to cut off funding for electrification of Cal-Train's tracks from San Jose to San Francisco, a necessary step in getting the train all the way into our shining new terminal downtown. The connection between the current CalTrain station at 4th and King to the Transbay Center is also behind and not fully funded and is now not slated for completion until 2026. Details here and here.

The Los Angeles portion is also taking shape with some decisions being made about routes and stops, with a potentially troublesome proposal to shorten the trains to 10 cars (instead of the original 20) which might create capacity problems in the decades to come.

Although it seems like this massive project is taking forever, it is much further along than any other rail project in the United States. Someday there may be connections all over our country and then we will say that this was the beginning. Or will we say that the dream of an America with a full-scale European or Asian-style rail network died in Modesto? Time will tell.

Rent or Buy?

Is it better to rent or buy in San Francisco? There is no easy answer to that question since it depends on your particular financial situation and goals, as well as more subjective issues like happiness and control. But it can be helpful to at least compare the two situations.

Reportedly, rental rates have declined in San Francisco over the past year and now stand at 2014 levels. That means the median apartment is now renting for $4100 per month. That's still a hefty price and outpaces every other area in the US (although the statistics can be misleading since it is not always clear what is included in a "city").

Of course, purchase prices are also very high. But which is the better deal for you? A useful analysis is to compare how much you will pay to rent or buy over a particular period. It is very important to take into account the tax benefits of owning (such as the deduction for mortgage interest and property taxes), maintenance costs (usually covered by the landlord for rentals, and partially paid for by HOA dues for condominiums), insurance and an estimate of appreciation. A good calculator is here.

But even after you have done that analysis, you still have to consider the differences between owning and renting that are more subjective. For example, when you own your home you can make changes without asking permission from a landlord. And improvement are yours - you own them and can sell them later with the property! The security of owning is also worth considering, since rentals are subject to the landlord's actions that are beyond the tenant's control. The landlord may sell to someone who is less accommodating or she may decide to stop renting to develop the property or sell it as TICs. San Francisco's rent control laws attempt to protect tenants from some of the harsher effects of this kind of thing, but owning is always more secure. Owning is also a primary vehicle for accumulating wealth since you gain appreciation on the entire property even though the money you invest is only 20% or even less. And there is a certain "feeling" about owning your own place. Whatever you decide, do not just let it happen; instead, consider your options and intentionally move forward to make your home, your life and your future!

Love's Day

February 14 is Valentine'd Day, one of our most cheery and inclusive holidays. Where did the day come from? A February holiday called Lupercalia was celebrated in Roman times and included brutal animal sacrifices, whipping and naked shenanigans. Then the Romans executed two early Christians named Valentines and the name stuck. The holiday acquired its current lovely reputation in Chaucer's and Shakespeare's time when romantic ideals held sway. Of course, commercialization (and the card industry) have broadened the holiday and perhaps made it more crass, but it endures. Detail of the history here and here.

Valentine love does not necessarily mean a romantic attachment - friends, colleagues and even the dog could all receive a Valentine. And very little is expected. A card, a piece of candy, a nice dinner - casual or expensive - of just a smile are all welcome.