Inside San Francisco Real Estate

Welcome to “The Scale”.  We’ll be taking a look at inventory absorption in different micro-markets around the City, and from the data, determine whether each neighborhood is a buyer’s market, a seller’s market, or in balance.

What type of market is it? It's time to judge.

How do we do this?  The first thing we do is find out how many active listings there are in a particular neighborhood.  Then we find out how many homes are selling on a monthly basis in that same neighborhood.  We divide the active listings by how many homes sell in a typical month, and this tells us how many months of inventory exist in that neighborhood.

What does “months of inventory” mean?  This means that if new listings were to cease coming on the market immediately, it would take this many months for all of the existing inventory (or active listings) to sell off.  For example, if we find out that Nob Hill has 47 active listings, and an average of 10 sales take place during a typical month, this would mean that there are 4.7 months of Nob Hill inventory sitting out there.  Thus, if no new listings hit the market in Nob Hill, it would take 4.7 months for that inventory to absorb (sell).

How many months of inventory are in your neighborhood?

“So what”, you’re thinking – why does this matter? In terms of inventory levels, if a market area has 0-5 months of inventory, it is considered a seller’s market.  If there are 5.1-6.9 months of inventory in the area, the market is said to be in balance.  If there are 7 or more months of inventory in an area, it is said to be a buyer’s market.  So, that’s how we’re determining which parts of town are tipped towards buyers, which ones are tipped towards sellers, and which ones are in balance (hence, “The Scale”).

For this post we are focusing on District 8, which is comprised of:

Downtown, the Financial District, Nob Hill, North Beach, Russian Hill, Van Ness/Civic Center, Telegraph Hill, North Waterfront, and the Tenderloin.  What did we find?

First off, here are the active listings broken down by neighborhood (also known as sub-districts) within District 8.  Russian Hill tops out the district with the most active listings, at 49.  Nob Hill is a close second with 47 active listings.

Now, just because Russian and Nob Hill have the most inventory in District 8 doesn’t necessarily mean that they are saturated.  What we look at now is how quickly those homes are being absorbed. This next chart shows us just that, by looking at how many months of inventory are left in these neighborhoods.

Based on the data, we see that North Beach has the least amount of inventory relative to how quickly homes sell in that area, and the Tenderloin has over a year’s worth of inventory.  This is interesting data indeed, but one caveat is that inventory that is not listed in MLS cannot be accounted for.  This “shadow” market is not a big issue in district 8, save for some of the new developments along Van Ness.

Overall, here’s what we’ve determined based upon the graph:

Downtown is in balance.  The Financial District is a buyer’s market. Nob Hill is a seller’s market. North Beach is a seller’s market. Russian Hill is a seller’s market. Van Ness/Civic Center is a seller’s market. Telegraph Hill is in balance.  North Waterfront is a seller’s market. And the Tenderloin is a buyer’s market.

Contrast these findings to what you’d find in other neighborhoods in other cities, and we’ve got a surprising amount of sellers’ markets.  Most neighborhoods around the nation are heavily favoring buyers right now.