Fall Market Provides Mixed Messages

The Fall market is now at its peak. We will see how it plays out this month and next, but September numbers provide a mixed picture. Certainly the market is not the extreme seller's market it was last year, but cries of a bubble bursting are not borne out by the statistics. The median sales price for all residential properties in San Francisco of $1,120,000 is still up year over year although by only 1.1%. But the divergence between single family homes and apartments is now quite clear. Homes are at a median of $1,216,875 which is 5.4% above last year's median. But condos/TICs/coops declined in value, standing now at $1,012,500 a decrease of 2.6% from last September. Other statistics show the same difference, with inventory down 1% for single family homes but up 6.6% for apartments. And the months supply (the number of months it would take to sell off the available properties) is up only 4.2% for single family homes, but up 14.8% for apartments. Nevertheless, this is still a seller's market with overall supply at 2.8 months and 3.1 months for apartments; the standard tipping point between a seller's and buyer's market is 6 months and we are still well away from that.

My explanation for the divergence is that there is almost nowhere in San Francisco to put a new house (except by replacing an existing one) so supply is static. Not true of condos which are being built as the city increases density. But no one should take that analysis too far. If there was a "glut" of new apartments they would be falling in price dramatically, but they are just edging down after several years of massive appreciation.

Looking at other numbers solidifies the view that the market is not as super-heated as last year, but hardly collapsing either. New listings are down 7.3% and would normally be expected to increase if property owners felt that the market peak had been reached or a decrease in prices was imminent. The median number of days on the market is way up to 28 days, which is over 40% higher than last year. But again this is more a reflection of the hyperactive market of last year; 28 days is still below the national average of 36 days (in July, the last month national averages are available) and the national figure is considered very low. Finally, the median percent of list price properties receive is down 6.6% to 104%. Thus, even after the run-up of the past few years, the average homebuyer is still overbidding. It's still a great time to sell, but buyers now can have more confidence in the correct sales price after reviewing comparable sales with their agent.

2-4 unit building median sales prices decreased significantly in September, down 19% to $1,280,000. But days on market changed little, from 33 days last year to 30 days this year. Perhaps more telling, sellers have not decided to divest; inventory is 18% lower than last year. Keep in mind that small numbers of 2-4 unit sales skew these figures, as well as the fact that many sales are not reported through the MLS.

As always, the state of the market in the city's different neighborhoods varies substantially. Only three districts saw increases. District 7 (Marina, Pac Hts), after a steep decline since May 2016's median of $2,100,000 is now at $1,550,000. That figure is an increase of 3.3% from last year, so it appears the northside is in no danger of falling behind any other area. District 2 (Sunset) and 10 (Bayview, Excelsior, Portola), by contrast continued a steady appreciation, up 3.6% and 3.3% respectively to $1,243,000 and $803,000. If the Sunset continues at this rate it will soon be the same as District 1 (the Richmond), traditionally the preferred area across the park; District 1 was down 1.1% to $1,375,000.

The big losers this month were District 6 (Hayes Valley, Western Addition. Lower Pac. Hts.), down 18.2% to $1,060,000, District 8 (Civic Center, Downtown, Russian/Nob Hills), down 12.7% to $960,000 and District 9 (SOMA, Mission, Bernal, Potrero), down 10.3% to $1,031,000. District 3 around Lake Merced in the southeast corner and District 4 west of Twin Peaks changed little (down 1.7% and 0.2% respectively). Finally, the second most expensive area, District 5 (Castro, Haight, Noe Valley), slipped by 6.3% to $1,452,000 and is now almost the same price as District 4 after a wide divergence beginning in the Spring. (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.)

Summing it up, it appears that the Fall market is consistent with a stabilization of prices at levels perhaps slightly below the peak reached this past Spring. Of course, outside factors, including November's elections, the direction of interest rates, and the economy as a whole could trigger another run-up this coming Spring or a prolongation of the "plateau" phase we appear to be in now. At any rate, the statistics give little credence to some sort of impending real estate crash in San Francisco. As always, the advice of 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 now 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 www.danslaughtersf.com.

Downtown Skyline Goes Up and Out

Like it or not, San Francisco's skyline is going up as relentless demand for both housing and office space drives construction of new and taller towers. Nowhere is this more striking than around the Transbay Transit Center, but there are exciting developments elsewhere in the city as well.

In the Transbay area, the city's tallest building is now the Salesforce Tower, surpassing the 853 foot Transamerica Pyramid this month and slated to top out at 970 feet. Nearby, also under construction, is the tallest residential building 181 Fremont with a two story open-air terrace and ultra-luxury condos perched on the top 17 floors. Several other interesting buildings, including ones by famed architects Jean Gang, OMA and Foster & Partners are planned. Especially when viewed from the east, like on the Bay Bridge, this group of buildings, together with those completing the high-rise residential neighborhood on Rincon Hill, make San Francisco's downtown skyline much broader and taller and turn the Financial District into a backdrop. 

The other major architectural cluster is at Van Ness and Market, where four tall towers are planned, one on each corner. Although plans are still preliminary and the city is considering up-zoning the parcels further to allow even higher buildings, Skidmore, Owings & Merrill have proposed a 39-story tower with glass-covered "wings" flanking a vertical void running all the way up the side of the building. One of the other parcels is city-owned and currently for sale, while the other awaits the closure of teh Honda dealership now occupying the site. Finally, Norwegian starchitects Snøhetta plant to complete in 2019 a 39-story tower at One Oak Street with a dramatic horizontal "cut" in its rounded facade. Of course, San Francisco already has a Snøhetta building, the addition to SFMOMA that opened earlier this year to rave reviews, so let us hope this new tower is just as great. If these projects come to fruition, they will add thousands of residents to the area, and extend Manhattan-style densification to the edge of the Upper Market/Octavia area and Hayes Valley.

With the intense community input all projects receive in our city, it can be hard to get interesting buildings up, because controversy usually means delay and more expense. So we end up with "safer" buildings (which, as everywhere, also are generally more cost-effective for developers because unusual design requires new constructions methods and additional risk). But these new proposals promise to enliven our city with new urban areas, new outlooks and, hopefully, a more beautiful city that serves all its residents well.  More details herehere and here.

Our Unique Geology

We live in a beautiful city, surrounded by hills and water. But with that topography comes risk. We have all had relatives or friends say "aren't you afraid of earthquakes" seemingly oblivious to the hazards they face at home including tornados, hurricanes, blizzards, and ice storms. So what do we do about our particular risks? Residential real estate transactions in California include a natural hazards report that gives all parties notice of the major hazards, and it's a good idea to have some sense of what those are while recognizing that absolute certainty is not achievable.

Earthquakes can cause damage anywhere in the Bay Area, but some areas are more prone to damage than others. In an effort to assess the relative risk, many consult faultline maps and liquefaction zone maps. The hazard reports buyers and sellers receive identify areas prone to landslides (generally, any area on a steep hill) and liquefaction (generally, areas built on landfill or other unstable soil). But these maps and reports do not take into account the strength of the building being considered or the particular geology of the site. So, for example, a hillside built on solid granite bedrock would generally be more stable than one built on an old dump, but both would be deemed landslide risks because they are steep.

Another concern, especially with rising sea levels attributable to global warming, is the risk of tsunamis or less catastrophic flooding. Most of San Francisco is up well above sea level, but certain parts of the city near the shoreline are susceptible. Maps of the worst areas - which are estimates of where there is risk, not where there is certainty, of water intrusion may be helpful.

All hazard disclosures should be considered general guides, not a real assessment of the particular risk of an individual property. For the risk averse, building and geologic inspections and earthquake and flood insurance are available. (But note that many condominium buildings do not have earthquake insurance and an individual unit owner would not be able to obtain it without the HOA -- all the owners -- agreeing). With the exception of the building inspection, which is fairly standard in San Francisco, especially for single family homes and small buildings, these assessment and mitigation measures are expensive and most homeowners do not pursue them. An experienced agent can help you talk through the issues but, like all risks in life, there will never be a complete answer. Consider that driving a car runs the risk of an accident, but most people do not stop driving, instead opting for safety features and insurance to mitigate the risk of, but not eliminate, a bad outcome. Natural hazards are the same and, no matter where you live, come with the territory. For general information, look herehere and here.

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 www.danslaughtersf.com.

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.

Transitions and Opportunities

There is a lot of talk about where the San Francisco residential real estate market is going. This month is consistent with the rest of this year - so far the trend is still up, although the pace of appreciation has slowed from last year. June 2016's median price of $1,235,000 for all types of properties is up 5% from last year. As is characteristic of the summer months, this is a dip from the Spring, but not as much of a dip as last year (only $15,000 down, as opposed to $50,000. And condos/TICs/coops are recovering from the perception of a dip earlier in the year; they are up 7% from last June. Single family houses, which shot up faster in the Spring have moderated, up $3.8%. Thus, our market remains strong and steady even if there may be opportunities for buyers that they did not have six months ago.

We are certainly still in a seller's market, just not the extremely overheated seller's market of a year ago. For example, the median days on market for all properties (20 days) is higher than a year ago but the overall trend in that category is not an indication of any kind of "crash"; the national average is 65 days. Inventory is down 6% from last year, reversing the trend seen recently. The number of properties with prices reduced from the initial listing price has risen from 13 to 19% year over year, indicating that the pace of appreciation is not accelerating. But, for perspective, the "supply" -- the number of months it should take to sell all the property on the market -- is still below 2 months, when a seller's market is considered anything less than 6 months. Again, all indications are that property in San Francisco is still very desirable and moving fast by any standard measure.

2-4 unit building sales showed a small increase to $1,660,000 median price, up $30,000 from last year. Days on market was essentially unchanged, at 35 days. Again, steady but slower appreciation and no flood of inventory as usually occurs if sellers believe that prices will go down soon.

Statistics for the different geographic districts clearly show that, although the market has slowed from last year, it is still quite healthy, but with significant variation across the city. For example, rather than double-digit increases, no district increased over 10% except for District 3 in the southwest corner of the city (up 10.8%). But District 5 (Castro, Noe, Haight) and 10 (Bayview, Portola, Excelsior) surged over 9%. Most of the city saw more modest appreciation: (District 2 (Sunset) up 3.6%, District 4 (west of Twin Peaks) up 4.5%, District 6 (Hayes Valley, Western Addition, Lower Pac Hts) up 5.3% and District 9 (Mission, SOMA, Potrero, Bernal) up 4.6%. But three districts declined including District 7 (Marina, Pac Hts), down 11.5% but still by far the most expensive at a median price of $2,005,000. Also declining were District 1 (Richmond) down 7.5% to 1,475,000 and 8 (Downtown, Russian and Nob Hills, Civic Center) down 3.9%. (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.)

What does all this mean? In this period of transition -- from a super-frenetic market where seemingly everything sells for way over asking in mere days, to a more steady market where sellers cannot rely on desperate buyers -- you need the advice of a professional. When you are ready to sell you need to make sure your property stands out through precise and compelling marketing, perfect presentation and informed advice along the way. To find the property you want you need an agent that knows the current market and pays attention to all the risks. My critical legal mind, in-depth experience and fantastic team of professionals is crucial. Contact me if you or someone you know wants to discuss real estate. More statistics, updated constantly, are at www.danslaughtersf.com.

New Housing Pipeline

San Francisco is engaged in a healthy public debate about whether we can build our way out of the housing crisis and if so, how and where that building should proceed. To inform us, it is helpful to keep an eye on what is already under way and planned.

Actually under construction and sure to make a dent in the housing market over the next year or two are a total of 5,153 condominium and rental apartment units (not including single family houses, which are essentially all replacements of existing houses). 3223 of those are rental apartments, concentrated in SOMA (2164 apartments) and Dogpatch (701). The condominiums total 1930 units, most of them in Mission Bay, northern neighborhoods (Cathedral Hill, Western Addition, Pac Hts), Hayes Valley, SOMA, Potrero and Hunter's Point. Note the areas where there is little or no building right now -- Mid-Market, Mission, southern and western neighborhoods.

An amazing 37,186 units (both rentals and condominiums) have been approved (although of course plans change and not all of those may be built). The vast majority of these are in three big developments on the edges of the city that will take decades to complete - Hunter's Point with almost 11,000 units approved, Park Merced with almost 9,000, and Treasure Island with another 8400. The only other areas with more than 500 units approved are Dogpatch, Potrero, Transbay, Tenderloin and Visitacion Valley. Again, some of the flash points of housing debate, like the Mission, do not have major approved projects in the works. Of course, there are proposed projects for virtually all areas, but those statistics are not very useful as the planning process typically involves major changes or even collapse of many of these projects.

Knowing what is already planned is the first step in understanding how to shape the process going forward. Lots of other statistics on new construction projects is here.

What is BRT?

Certainly San Francisco needs to move more people around faster as the city grows. Dedicated rail lines, especially those that do not have to interact with vehicular traffic (like subways) can move faster and on a set schedule. The city has committed to studying ways to expand our current Metro system. But rail is expensive and disruptive to build. So transit planners also use BRT - Bus Rapid Transit - solutions to move bigger buses faster on our roads. The basic idea is to set aside part of the roadway for buses only (sometimes allowing taxis as well) and then rework the streetscape to make sure the buses can load quickly and move quickly (often setting up traffic signal systems to favor the buses).

There are two BRT routes proposed for San Francisco. One, along Van Ness Avenue from just south of market to Lombard, is in the final planning stages and slated to include bus lanes that load from a reworked median and a host of streetscape improvements. The other is proposed for Geary Boulevard from Market to 34th Avenue. It is much further behind in the planning process and has met with significant opposition centering around loss of parking, removal of pedestrian bridges and the business disruption during construction.

We certainly need to do something to get people moving about the city quicker and BRT may be a useful part of the solution in an era of limited transit funds. Moreover, some of the improvements that BRT brings may make those corridors easily convertible to rail lines in the future. But we cannot study these solutions for decades - the Van Ness BRT has been in planning since 2001. Let's make a decision and get moving! Details here and here.