New Normal - Prices Up, Inventory Down

Statistics for June sales show a continuing strong market. Prices remain up, increasing 5.4% year over year from last June for all properties. And appreciation should continue at a steady pace since the inventory of available properties remains at record lows, down over 34% from last year. But the super-frenzied market of 2015, when properties were selling at a median of more than 10% over list price has now settled down to about 6% over, virtually the same as last year. That means that the market is rationally absorbing the price increases of the past few years, but neither headed for a downward correction or an immediate new upswing. We are definitely in a new normal of current level prices, appreciating at a measured rate but with intense competition for what is available.

Looking more specifically at various segments of the market, we find support for this picture. Single family homes continued to show amazing strength increasing almost 11% from last year to a median price of $1,468,000, the second highest median price ever (the first highest was last month). Condo/TIC/coops were slightly down from last June ($1,145,000, down 2.6%), but last year's median was the third highest ever (the first and second highest were February and May of this year). So condo prices actually are stable, if not seeing the huge jumps of homes. As noted, inventory is way down after a run up last Fall. Of course, it may be that sellers are waiting for the Fall market, and we may see a big jump compared to last year because this year we have no election to cause uncertainty. We will have to see, but all indicators point to a steady market, making it a great time to sell or buy.

Small (2-4 unit) apartment buildings followed these trends with one important exception. The median price shot up 11.4% year over year to $1,850,000. The length of time properties stayed on the market stayed steady at 33 days, remarkably low given that there were 55 sales versus only 46 last year. But that higher sale number means there is more inventory in the market and anecdotally it does seem that owners are taking profits on the run-up from recent years. This may be driven by media reports of rent decreases for the first time in many years, but those reports can be misleading because they include only larger buildings that report numbers (San Francisco's rental market is mostly smaller buildings) and/or Bay Area statistics. At any rate, the apartment building market can only be described as strong and appreciating. (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 overall picture above varies considerably when we look at different areas of the city. The entire west side of the city saw much higher increases compared to everywhere else. District 3 in the southeast corner of the city by Lake Merced, was the big winner with a median price of $1,060,000, up 19.3% over last year. But both District 1 (Richmond, Sea Cliff) and 2 (Sunset, Parkside) were up too by 12.1 and 11.5%. For the rest of the city, only District 10 (Bayview, Excelsior, Portola) could compete, continuing its endless climb up and hitting a median of $897,000, a 9.5% increase from last year.

The center of the city saw much smaller increases, with District 4 (West Portal, Diamond Hts, Westwood Park) up 3.1% to $1,480,000, District 5 (Castro, Noe, Haight) and 6 (Hayes Valley, Lower Pac Hts, NOPA) up 1.6% and 1.3% each. And District 9 (SOMA, Potrero, Dogpatch) hitting "only" $1,205,000, essentially the same as last year. The losers this month were District 8 (downtown, Civic Center) which slipped 10% to $995,000 and District 7 (Pac Hts, Marina) which sank to a median just below $2,000,000 (down 2.5%).

This variance caused some major realignments as District 1 and 4, both "bedroom" communities, traded places. District 1 (Richmond) surged ahead of the west of Twin Peaks area (District 4). And remarkably, District 1 even jumped ahead of perennial second place finisher District 5. This is only the second time since 2009 that has happened (the other seemingly an anomaly when District 1 jumped ahead for one month in May 2015). But interestingly if we look at single family homes, District 5 was up 23% to a median price of $2,400,000, way over District 1's median home price of $1,786,000. (District 7 need not fear being toppled as the king, however, since the median single family home there sold for $5,324,000.) Given these figures, it seems that some low-priced condominium sales must have driven District 5's numbers down and I would expect that area to jump back into second place soon. But we will have to see. (All district statistics are three month rolling averages, to mitigate for low numbers of sales.)

In summary, San Francisco's market shows remarkable strength especially given the years long surge in prices we have seen. Demand remains strong and inventory low, so there is no sign of a dip; rather, steady appreciation seems to be the new normal. If you are interested in the specific value of your property or in taking advantage of the "plateau" to get into the market before it goes up further, give me a call so I can analyze your specific situation and use my experience and skills for you. More statistics, updated constantly, are at www.danslaughtersf.com.

Hayes Valley Spotlight

San Francisco is a city of neighborhoods so I like to periodically spotlight one of them, providing history and the current "take" on it. Hayes Valley started out after the Gold Rush of 1849 as a produce farm area. As the city rapidly expanded, however, it (along with the rest of the Western Addition) was built out with mansions and smaller homes for the ever-expanding population. Many of those structures survive because the area did not burn in the fires after the 1906 earthquake, and Hayes Valley continued to be a crossroads, close to the center of the city, Civic Center and Opera but just removed enough to be a "neighborhood." Always multi-ethnic, during and after World War II large-scale African-American immigration made the area part of that thriving community that stretched to the Fillmore.

The Central Freeway spur of US 101 changed that. Built in the 1950s, the elevated structure cut through the neighborhood creating dark underpasses and disruptive entrance and exit ramps. Hayes Valley was more of an interchange than a neighborhood and it became one of the most crime-ridden areas of the city.

In 1989, nature intervened with the Loma Prieta earthquake weakening the Central Freeway, which was closed for many years. Eventually, the city's voters agreed to demolish the freeway north of Market Street and to create a new park and grand boulevard on Octavia. Savvy residents and business people saw the appeal of the charming old buildings, sunny weather and proximity to the central city and began moving in, fixing up and establishing a "hip" business corridor on Hayes Street. The new park was in place by 2005. As the empty lots that had once been freeway ramps were sold off and redeveloped into apartment and condominium buildings (a process that continues to this day) the area has been transformed into one of the best parts of the city. Prices reflect this change. Since 2005 the per square foot price has more than doubled and properties now sell for a median price of $1,341,000, up from $572,500 in 2005.

Today, Hayes Valley is truly one of the gems of the city. The commercial neighborhood has maintained its unique character with interesting local shops and restaurants, Octavia Park is filled with interesting public art that changes constantly, there is a pop-up beer garden, movies outside in the summer and the new Jazz Center to compliment the Opera and Symphony. Many of the new buildings are architecturally significant yet they blend in well with older buildings that have been restored to their Victorian and Edwardian grandeur. Go Hayes Valley!

Parking and Traffic

As the city's population continues to grow, managing residents' and visitors' cars grows ever more difficult. Two issues are getting a lot of attention now - ridesharing services and parking permits. The explosive growth of Uber, Lyft and other private car services has put more cars on the city's roads; it is estimated that 20% of vehicles are from ridesharing services. The increased wear and tear on our roads has to be paid for somehow, but should that burden fall on the drivers, the companies or users of the services? The city requires that drivers, as independent contractors, obtain a $91/year business license. But some would like to impose a tax or fee on each ride as well, which may make more sense given that more rides mean more wear and tear. Also, some argue that these services rob public transit of riders making our buses and trains unsustainable. On the other hand, these services - just like taxis - decrease parking needs to the extent they replace private car trips where the car has to be put somewhere while waiting for the return trip, and may decrease the number of cars parked on our streets generally because many Uber and Lyft drivers come in to the city from elsewhere in the Bay Area or beyond. Uber and Lyft are important parts of our transportation system and filled a need not being met by the taxi industry previously, but are they and their passengers paying their fair share of the costs of the service? More details of the debate here, herehere and here.

Out in the neighborhoods, another issue arises with increased population. Starting in the 1970s, the city established residential parking permit areas that generally prohibit parking by non-residents during the day for more than one or two hours. The idea was to keep street parking for nearby residents instead of commuters. Each household is limited to four permits, but there is no limit to the number of permits that can be issued for an area - all residents are entitled to them. Current rules are that 50% of an area's residents must request a new permitting area or to be added to an existing one and the city also surveys to determine the number of non-residents who actually park there. Most of the current permit areas were in place by the 1990s with very few added since then. As the density of the city has grown, however, these rules have resulted in many areas with more permitted vehicles than there are spaces. Now MTA is considering lowering the number of permits per household, setting a limit on the number it will issue for an area and considering access to garage and other off-street parking for a particular resident before allowing a street parking permit. New areas are also in consideration for Bernal Heights and Dogpatch, and they will carry some of these new rules so we will see if that alleviates the parking issues or if there is just no substitute for -- fewer cars! More details here and here

Adolph Sutro

 Engineer, philanthropist, real estate mogul, and mayor, Adolph Sutro is one of San Francisco's most beloved figures. He made his fortune in Nevada where he devised a tunnel system to drain water and gas from the Comstock Lode mineshafts. Then he sold out and moved to San Francisco in 1879. He bought Sutro Heights (1000 acres looking out at the Pacific some of which is still public land covered with a eucalyptus forest), Land's End and Mount Davidson among other properties. He built his estate on the bluffs near Sea Cliff, but opened the gardens to the public. He then built the Cliff House and Sutro Baths below and even his own railroad so that people could get there from downtown! He and his heirs donated much of this land to the city - that's why we have Lincoln Park. And he also gave us a grand monument in my neighborhood, Mt. Olympus. Considered the geographic center of the city (although it is actually nearby on 17th Street) Mt. Olympus was once a grand park covering the top of the hill with stairs cascading down all four sides and 360 degree views in all directions. Sutro gave a statue, The Triumph of Light, that was placed at the top on a pedestal as a sort of Statue of Liberty for San Francisco. Although the statue was later dismantled and much of the park sold off for private homes and buildings, Adolph's gifts to the city still bring light and open space all over town. Details here and here.