Inside San Francisco Real Estate

It’s time to battle.  The first half of ’09 is over and we’re anxious to see which condo market has fared better through the roughest patch of real estate roadway we’ve driven over in quite some time.

It's time to battle! Is Obama about to flick McCain's ear? Nice.

In this analysis, we compared condominium median trends in two large market areas.  The first is what we’ll refer to as “SOMA”, and includes South of Market, South Beach, and Mission Bay.  See districts 9d, 9f, and 9h on THIS map.

The second market area is what we’ll refer to as “North of California” and includes the neighborhoods of the Marina, Cow Hollow, Pacific Heights, Presidio Heights, North Waterfront, Telegraph Hill, North Beach, Russian Hill, and Nob Hill.  Districts 7a, 7b, 7c, 7d may be seen on THIS map, and 8c, 8d, 8e, 8g, and 8h, on THIS map.

The two market areas we defined differ significantly from one another.  We’ve written about SOMA’s higher inventory levels in the past, and since the overall market has taken a turn for the worse, we would like to see if those inventory levels have indeed affected values.  North of California has tighter inventory levels and less growth (in the form of newly built homes).  It seems more stable, but what will the numbers say?  Lets find out, shall we?!?

To see the charts, continue reading –>

SOMA vs North of Calif - Medians (click to enlarge)

• Medians were inflation adjusted to control for the changing value of the dollar over time.  This helps us isolate market movement from other factors.
• We analyzed just the first half of each year so that we could get an “apples to apples” comparison with 2009 included.
• SOMA seemed to react to the downturn first.  Medians peaked in 2005.  North of California’s medians peaked in 2008.
• This is a “duh” stat, but it is more expensive to live North of California than South of Market.
• SOMA medians have come down 21.04% since peak.  North of California medians have declined only half as much, coming down 9.7% from peak.
• SOMA has had a much more dramatic year over year decline, posting a 17.16% loss.  North of California is down 9.7% year over year.
• Is SOMA a weaker market, or is North of California just late to react?  That remains to be seen.  If SOMA begins to stabilize and North of California continues to fall, we’ll be able to make a call.  Looking back at the dot com bomb and the terrorist attacks of 2001, it seems that SOMA reacted with a trough first, with North of California taking a full year longer to hit its low.  Both fell a remarkably similar 20% at the time.

How about the sales volume for these two market areas?  After all, we need to show you how many sales went into each median value, so you can have confidence in these numbers.

Sales volume - SOMA vs North of California (click to enlarge)

• SOMA sales are down 62% from peak.  Condo sales volume North of California is down even more, declining 72% from peak.
• On a year over year basis, SOMA has fared better once again, down 41%.  North of California is down 57%.
• With higher prices in the North of California market area, it makes sense that sales volume has declined more.

Final Thoughts

North of California has shown more resilience through the downturn thus far and generally has less inventory glut.  However, we wouldn’t be surprised if there was some correction left in the North of California market area, as it has demonstrated in the past that it can lag the SOMA market by a full year when major events affecting real estate play out in the market.

The fact that sales volume is down more noticeably in North of California can be tied to the fact that real estate is more expensive in the area.  We’ve noticed (and written about) higher price brackets in San Francisco having less sales, which is likely due to higher interest rates and larger down payment requirements in the jumbo market.  Credit in the low price brackets is flowing slowly, like cold water.  Around the $1M price point, things get tougher, and credit begins to resemble “slush”.  At the high end, credit no longer flows… it has big chunks of ice in it.

Winner of the battle?  North of California… for now.

For more articles that analyze SF’s neighborhoods, click HERE.