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US and San Francisco Economic Trends

A selection of charts looking a various angles of current economic trends in the United States and San Francisco. For the past 50 years, the San Francisco and Bay Area housing markets have only “crashed” in tandem with a large, national, negative macro-economic event. Which is why it’s useful to look at important U.S. trends on issues such as employment, household debt, and stock market price to earnings ratios, as well as those trends that are more local.

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How can I keep my house cool?

With spring about to be sprung, the temperatures are bound to increase. The Consumer Guide to Home Energy Savings (via Care2) has a few tips for keeping your home cool while keeping a precious few bills in your pocket. Here are a few:

 

  • Keep doors and windows closed during the day to prevent unwanted heat and humidity from entering. By night, ventilate either naturally or with fans.
  • Cut your cooling load by using some conservation measures such as shading east- and west-facing windows and delaying heat-generating tasks such as dishwashing until the evening. (Hey, a reason to put off chores!)
  • Ceiling fans can make you feel more comfortable at higher thermostat settings. Try a sow-turning, ceiling-mounted paddle fan, which provides a breeze of about 2.5 feet per second or 1.7 miles per hour.
  • Planting shade trees around the house can offer relief, but remember not to plant on the south side if you’re seeking to benefit from passive solar heating come winter.
  • Ventilate at night and on cooler days, using window fans and an open window in each room. Keep interior doors open as well to permit air flow.
  • High-efficiency air conditioners with an energy-efficiency ratio above 10 are helpful. For central air conditioners, look for a seasonal energy-efficiency ratio higher than 12.
  • Finally, resist the urge to use a dehumidifier while your air conditioner is operating simultaneously. This will result in increasing the cooling load while forcing the air conditioner to work harder. This isn’t what you want!

 

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What do Paragon agents offer you?

How do the agents here at Paragon plan and execute an equally important mission: finding you a property that you’ll love and enjoy for years to come, getting it for you at the best possible price and terms, meanwhile making the process as smooth, straightforward and stress-free as possible while managing the transaction so that you are fully aware of the condition and circumstances of the property you purchase?

 

Here’s a few of the ways we do this:

 

  • Take the time to recognize your needs, wants, priorities, concerns, financial parameters and timeline
  • Analyze the process, cost, options, strategies and decision points in order to make them understandable and manageable
  • Help you understand market conditions and values to lead to an informed decision
  • Offer prompt data on new listings that meet your criteria
  • Help you stay informed of opportunities along with assisting you to evaluate the pros and cons of all the choices before you in terms of price range, neighborhood property types and conditions as well as architectural style and amenities
  • Provide complete market value analysis of any property under consideration; this includes recent sales, comparable homes available and market conditions pertinent to the property
  • Skillfully and aggressively negotiate on your behalf in order to secure the best possible price and terms
  • Guide you during the course of investigatory due diligence so that you may fully review all material information before the close of your purchase
  • Refer you to professional resources as necessary
  • Present you with the facts as best we can get them, never rushing you or pressing you to make uncomfortable decisions
  • Provide you with true fiduciary representation, which is our commitment to represent and protect your interests above all others.13479

Part Three: Factors that underpin the San Francisco market

Today we conclude our look at the Paragon report titled 10 Factors Behind San Francisco’s Real Estate Market. Here are the last of those factors:

 

  • Magnet effect. This small city of ours is also the heart of what the report says is “perhaps the fastest-growing, most lucrative, highest-prestige business segment.” In addition, San Francisco is also an amazingly beautiful, educated, tolerant and culturally rich metropolitan area, making it a magnet for awesome folks of all types who are willing to pay a major premium for living here.
  • Limited supply. With nearly two-thirds of the city’s housing in rental units, much of which is under rent control, the number of homes suitable for owner-occupancy and available for purchase is relatively small – between 6,000 and 7,000 units. This makes the San Francisco homes market less than half the size of that is Alameda and Contra Costa counties.
  • Tax benefits. While not counted as one of the 10 factors behind the current market due to the fact that the enormous benefits are always present whether boom or bust, they’re still a huge factor underlying the housing market. The ability to deduct interest costs and property taxes also allows homes to cost much more while also remaining affordable to buyers.

 

Questions? Get in touch.

 

Part Two: Factors that underpin the San Francisco market

When last we met, we began to discuss the Paragon report titled 10 Factors Behind San Francisco’s Real Estate Market. Let’s continue to look at these factors, shall we?

 

  • High rents. It’s sometimes the smarter move to buy a home in San Francisco – given the multiple tax benefits, low interest rates, equity accrual and future appreciation – if your alternative is paying a ridiculous amount of rent without any of these benefits.
  • Low interest rates. In the decade between 1996 and 2006, 30-year fixed-rate loans averaged a 6.3 percent rate. As of year-end 2015, that figure was running about 4 percent. That’s a 37 percent reduction in the cost of financing, which makes a major difference in affordability as well as the ongoing costs associated with housing. According to recent Fed indications, many are expecting rates to rise in the future.
  • Renting rather than selling. These high rents and low rates have convinced some owners who would otherwise sell to rent out their homes, which is enhanced by the option to rent to tourists through AirBnB. Paragon has also heard from some owners that they are afraid to sell now, lest they or their children never again be able to afford to buy. Inventory is negatively affected by this since there are fewer listings coming on-market.
  • The work-there, live-here factor. This relatively recent development entails reverse commutes – people working or taking new jobs in Silicon Valley high-tech and bio tech, but insisting on living in the city. Witness the Google bus phenomenon for further examples of this.

 

We’ll conclude our look at these factors next time.18

San Francisco Real Estate Market Report (including 13 custom charts)

Monthly and seasonal fluctuations in median sales prices are quite normal and do not necessarily say much about changes in fair market values. For that one must look at longer-term trends. However, for what it is worth, the median price in February was the highest since it peaked in May of 2015. If this spring is like the past 4 springs in which a very-high-demand/ very-low-supply dynamic prevailed, then sustained home-price appreciation may start showing up in the statistics during the next few months.

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Chart: Median Price Trends since 1993

Chart: Case-Shiller Metro Area Home Price Index

We say this very preliminarily since the 2016 market has just gotten started after the holiday doldrums, but it appears that San Francisco homebuyers are generally shrugging off the recent volatility in the stock market. That doesn’t necessarily mean there will be a repeat of the overheated markets of the past few years. Much more will be known once the spring selling season really gets into full swing.

San Francisco Construction Boom Continues

Q4-2015_Pipeline_Under-Construction-Permitted-SubmittedDevelopers continue to add projects with thousands of new units to the San Francisco new-housing pipeline. If they are built as currently planned (as of Q4 2015), the city should add over 60,000 new housing units (market-rate condos and apartments, and affordable and social-project housing) over the next 5 to 6 years, with another 25,000 in 3 huge projects that may take decades to complete. However, new developments are being constantly added to the pipeline, and existing plans are regularly altered. They may even be abandoned if economic or political conditions dramatically change.

So far, increased supply due to completed new construction has not created significant downward pressure on prices. This may change as construction completion accelerates in coming years, however almost all of the market-rate development is directed toward the more (or most) expensive end of the condo and apartment market. House sales will continue to become a smaller and smaller percentage of the SF market, which may play a role in enhancing their values.

Our full article: San Francisco Housing Pipeline

Where to Buy a Home in San Francisco for the Money You Want to Spend

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The charts above are 3 of 8 in our updated report: San Francisco Neighborhood Affordability

Seasonality & the Spring Market

Overbidding by Month

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Luxury Home Listings Accepting Offers by Month

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The San Francisco real estate market is deeply affected by seasonality, which shows up in the rise and fall of inventory, buyer demand, overbidding and median prices. For the past 4 years, spring has experienced the most feverish buyer competition for new listings, which led to the highest overbidding percentages, as seen in the first chart above. (111% signifies an average sales price 11% over the asking price.) In February 2016, the percentage over list price started climbing again after the usual slowdown of the winter holidays.

The luxury home segment is even more dramatically affected by seasonality than the general market. As seen in the second chart above tracking accepted offers, expensive home sales typically soar to their high point in spring, drop during the summer holidays, rebound for the relatively short autumn season, and then plunge deeply in mid-winter. This ebb and flow of high-end sales is one of the factors behind short-term, seasonal ups and downs in median sales price. So far in 2016, luxury home closings have been comparable to early 2015, but we are just entering the main selling season now.

Our full overview: Seasonality & the SF Real Estate Market

Mortgage Interest Rate Trends

Short-Term Changes since the Fed Raised Rates

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Chart: Long-Term Interest Rate Trends

Since the Federal Reserve Bank raised the benchmark interest rate in mid-December, interest rates have actually dropped by about 8% (as of March 3), which makes a significant difference in monthly mortgage costs and loan underwriting qualification. This downward pressure on rates is generally ascribed to the dramatic volatility in the stock market since the year began. (Investors often pour money into bonds in times of stock market volatility, which then lowers the interest rate.) It is famously difficult to predict interest rate movements, which can be sudden and dramatic, but for the time being, they are getting closer to the all-time low in 2013. That is good news for the real estate market, while it lasts.

Bay Area Housing Affordability by County

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Chart: Long-Term Trends in Housing Affordability

Housing affordability is one of the biggest political issues in the city and the Bay Area. The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 4th quarter of 2015, and above are 3 of 10 charts in our updated analysis. San Francisco is now 3 percentage points above its all-time low of 8%, last reached in Q3 2007, however there has not yet occurred the convergence in extreme low affordability across Bay Area counties seen in 2007. Interest rates play a big role in affordability calculations and, as noted earlier, they have been falling in 2016.

Our full report: Bay Area Housing Affordability

San Francisco & U.S. Rents

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Chart: Long-Term SF Rent Trends

Despite ticking down a tiny bit at the end of 2015, San Francisco rents remain the highest in the nation. Since rents are not ameliorated by low interest rates and the numerous tax advantages pertaining to homeownership, new renters in the city bear the worst brunt of the housing affordability crisis, even more so than new homebuyers. A number of large, new rental apartment buildings have recently been coming on the market and many more are planned. This new inventory may eventually help provide significant rental-rate relief, however almost all the market-rate projects being built feature luxury apartments priced at the very high end: New studio units can rent for $3500 per month and more.