SF Market Absorption Update
March 23, 2009This morning we queried the MLS for a snapshot of our local marketplace in order to understand absorption. Property types in the query include single family homes, condos, TICs, lofts, co-ops, 2-4 unit buildings, 5+ unit buildings, and lots/acreage. It does not include new developments who leave their data out of the MLS. Here is the rundown:
- 518 properties have sold in San Francisco since January 1, 2009.
- There are currently 2,038 properties for sale in the MLS.
- 625 properties are currently in contract.
- That leaves 3.26 months of inventory* out there. Anything less than 6 months of inventory is considered a stable market.
*When we refer to “months of inventory”, it means that if new listings stopped hitting the market immediately, it would take X amount of time for the current inventory to completely sell off. This is also known as an “absorption rate” and it tells us how quickly demand is eating up supply. It is calculated by dividing the number of properties currently for sale by how many properties are currently in contract.
How quickly is demand eating supply?
Now that we have the big view, lets break things down further into property types. For example, what absorption rates are we looking at with single family homes, condos, or TICs? Here are the results:
Single Family Homes
- 258 homes have sold since January 1, 2009.
- There are 626 homes for sale.
- 264 homes are currently in contract.
- That leaves 2.37 months of inventory.
Condos
- 161 condos have sold since January 1, 2009.
- There are 706 condos for sale in the MLS.
- 183 condos are currently in contract.
- That leaves 3.85 months of inventory.
TICs
- 41 TICs have sold since January 1, 2009.
- There are 258 TICs currently for sale.
- 77 TICs are currently in contract.
- That leaves 3.35 months of inventory.
Lofts
- 13 lofts have sold since January 1, 2009.
- There are currently 69 lofts for sale.
- 13 lofts are currently in contract.
- That leaves 5.30 months of inventory.
Stock Cooperatives
- 6 Co-ops have sold since January 1, 2009.
- There are 30 co-ops for sale at this time.
- Only 1 is in contract.
- That leaves 30 months of inventory.
2-4 Unit Buildings
- 29 properties have sold since January 1, 2009.
- There are 255 2-4 unit buildings for sale at this time.
- 58 are currently in contract.
- That leaves 4.39 months of inventory.
Final Absorption Rate Rankings:
- Single Family Homes (2.37 months)
- TICs (3.35 months)
- Condos (3.85 months)
- 2-4 Unit Buildings (4.39 months)
- Lofts (5.30 months)
- Stock Cooperatives (30 months)
Final Thoughts:
The fact that all property types (with the exception of Co-ops) are registering under 6 months absorption is a good sign for our local marketplace. It’s good in that our local marketplace is remarkably stable. Inventory levels in San Francisco remain tight and demand has seen a seasonal uptick with spring upon us. Stock cooperatives will see big changes in their absorption rates with just a couple of more units in contract, so we’d take that number with a grain of salt. Single family homes lead the pack. TICs surprised us with a 2nd place ranking, and condos come in number 3.
San Francisco's market is showing good stability.
For more articles about San Francisco’s market as a whole, click HERE.
Not sure who is doing the math or statistics but something isn’t right !!!
161+183=344 thats the total and this includes ones in contract some of which I know will have been in contract before 2009.
Devide this number by 3 to get monthy sales and that = 114 for condos sold per month.
then if there are 703 on mls devide 114 into that and you get 6.17 months supply and that being generous.
if one devides the actual average monthy sales into mls number of condos ie. 703 devided by 53.7 thats gives us a 13 months supply of condos on mls
please correct me if I’m wrong as I really would like to know how you get this numbers
Thanks Paul.
ps I do like your site
What about the “phantom inventory” I hear so much about? That is, the folks that have withdrawn their properties to sit on them/rent them until the market improves? How do you factor that in?
@Paul:
Not sure I’m following your numbers but the way I calculated the absorption rate was to A) find out the total amount of inventory within a certain property type in the City and B) divide that number by the number of properties in contract (this would include active-contingents and pendings). It’s a pretty straightforward way to calculate absorption. It sounds like you may have employed a different methodology. There are a few ways to calculate absorption and we must be using different methods.
A fellow statistical comrade, Misha Weidman (developer, attorney, Realtor), has also found that absorption rates in San Francisco hover between 2 and 3 months. Here is an article from his blog:
http://spedr.com/1xiha
Hope this helps and thanks for the compliment on my blog. It’s hard work but worth it!
@Jay: Phantom inventory can’t be accounted for in my analysis, unfortunately. My method has constrained the analysis to the black and white… If a property is not on the open market, then it’s not counted. There are a few types of “phantom inventory”, “ghost inventory”, or “shadow market” forces out there. Kinda reminds me of dark matter in the Universe… it’s there, it affects things, but we can’t quite figure it out.
At any rate, these forces do affect the market but they are just too amorphous to put a finger on. The only one that is somewhat quantifiable is the number of units that new developments have in the pipeline. I believe Socketsite does an analysis on this… very helpful. Unfortunately, to calculate absorption, you’ll need the other element in the equation… the number of these new units in contract. Developers often don’t give this info out and when they do, it can be wayyy off from reality (as they try to spur sales).
Other sources of phantom inventory include for sale by owner properties, pocket listings, and like you said, withdrawn or expired listings that are really still for sale (and sometimes being rented). You asked how those would factor in. It would definitely increase the months of inventory out there if we could quantify those numbers. The main point of my article is that SF is registering a stable absorption rate. Even if we doubled my numbers to account for phantom inventory, we’d still have around 6 months of housing stock out there, which is still considered stable. Thoughts?
One more point – there aren’t just supply side phantoms. There are demand side phantoms too. For example, when one home receives 10 offers, the “one in contract” statistic doesn’t really capture how much demand is out there. This is discussed in Misha’s post.