Inside San Francisco Real Estate

It’s the ultimate question, and we get asked almost daily.  I’ve actually been asked so many times that I have unintentionally developed a canned response, explaining how San Francisco is comprised of many different micro-markets and they all behave differently.  What’s going on in South Beach isn’t what’s going on in the Sunset, ya dig?

Time to gain some perspective on the market

However, zooming out and looking at the City as a whole, we wanted to provide an answer to this broad question by looking at 14-year median value trends for all different property types (single family homes, condominiums, TICs, and lofts).  Stock Cooperatives were left out because there were not enough data points to be particularly useful in the analysis.  For single family homes and condos, there were thousands of data points, and for lofts and TICs, there were hundreds.  So we have confidence in these medians.  All data comes from the MLS so it represents open market transactions only (this is a good thing) and the resale market only (meaning it leaves out most new development sales, which is okay because if you’re an owner, the resale market should be what you’re concerned with anyway).

Now for the answer:  Have prices come down in San Francisco?

Have prices come down in SF? (click to enlarge)

All righty.  Let’s take a walk through this chart.

• Median values for single family homes, the navy blue line, peaked in 2007 and have come down about 8% from peak.
• Surprisingly, condo medians (the green line) are holding up better than single family homes.  Median values also peaked in 2007, but only came down half a percentage point in the last year.  Logic would tell us that condos are slightly more volatile investments than single family homes, but this data does not support that theory.
• The loft market (the orange line) is a bumpier ride than other property types.  You can see where the dot com bomb of 2001 hit the loft market pretty hard.  Does that tell you anything about who buys lofts?  It took nearly four full years for the loft market to rebound from the hit and it reached a new high in 2008, oddly enough, at $719,000.
• The TIC market (the teal line) is sputtering.  It peaked in 2005 (when most fractional TIC loan products came out) and has lost about 5.75% of its value since.  Also, the number of TIC sales is very low now compared to just a year ago.
• Overall (the red line), all property types taken together peaked in 2007 and are now 4% lower than peak.
• In most cases, we are at 2005-2006 levels.
• Have prices completely imploded, losing 25%, 40%, or 60% of their values (like we’ve been reading in the papers and other blogs)?  The answer is in San Francisco, no, they haven’t.  I challenge anybody to show me where they have.
• Will prices come down in the future?  The only way to tell is to keep close tabs on economic indicators, such as jobs, consumer spending, our local industries, the availability of financing, and of course, population growth.  Some bears out there are predicting a further 40% decline for San Francisco values.  Really?  I think that if prices came down that much we’d undergo a mini-population boom, as there are people lined up to live in this City if they could afford it.  And a population boom would, you guessed it, drive prices right back up to where they were.  San Francisco will never have Atlanta prices, folks.
• What we see in San Francisco right now is a stagnant market.  A market that has not done much since 2005, no big gains, no big losses.  Contrast this to other locales around the nation and you’ll see that investments in SF real estate have fared well.  Other cities’ charts resemble downward cliffs since 2005, not plateaus like ours. For sellers, this is bittersweet news.  For buyers, the same.  Neither one truly has the upper hand right now.  It’s a pretty fair market.  What has occurred since 2005 is a steady decline in the number of annual transactions.  This makes real estate investments slightly less liquid than in years past, so sellers can count on longer marketing times and more pressure from buyers who have more room to be picky.
• THE BOTTOM LINE: Yes, values have come down around 4% since peak, looking at the whole picture. If you’ve been reading our Getting Granular articles, this shouldn’t be all that surprising.
  

Now, what if we did the same analysis but left out District 10 (which includes Bayview and Hunter’s Point).  Would we see the same trends?

SF Medians Districts 1-9 ONLY (click to enlarge)

What we see is very similar to the first analysis.  Values are a little higher in general but the trends remain very similar.  You’ll notice we left lofts out of this analysis, as there aren’t really any located in District 10.  The red line (all property types), takes a lesser dip in 2008 than in the analysis that included ALL of San Francisco, showing  just a 1.6% decline off peak.  The red line is also at virtually the same level in 2008 as it was in 2005.  The navy blue line, single family homes, shows a decline of only 5.5% since peak (as you’ll recall, it was down 8% when District 10 was included).

Leave your questions and/or comments below.  We’d love to hear your take on the data.

For more macro level articles, click HERE.