Mainstream National Media Reporting on Steep San Francisco Rent Drop

The Wall Street Journal and other mainstream financial news outlets are now caught up in reporting that a fairly serious crash is going on in the rental markets in New York City, San Francisco and San Jose. New York is being impacted to the tune of a 20% downturn in rentals even as rents go down or incentives to rent (like free rent for a up to six weeks) go up.

Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at UC Berkeley says, “San Francisco and New York are leading the way in the downturn. People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”

What’s happening is that there are so many rental units coming on the market in a kind of perfect storm of supply glut. The rental market in these big cities has been in a long boom. Seven million new renter units have been built nationwide since the foreclosure crisis in 2006-7 plus a trend toward urban living. The home ownership rate declined to a 51-year bottom.

In San Francisco there’s been a one-two punch of a reduced job availability in the middle and upper class ranges and a huge jump in multi-unit housing coming on the market. By the end of 2018 there will be 6,500 more apartments to fill with tenants. New York is projected to have 42,000 new units on tap in that same period. San Francisco, Oakland and San Jose are seeing a 76% surge in new apartment units in 2016. One of the results is generous incentives offered by luxury and semi luxury towers to get people to move in—from giving away free bikes to four weeks of free rent or $1,000 discounts for renters saddled up with tech companies like Apple. And some rent prices are coming down in the luxury level class.

July 2016 S&P Case-Shiller Index Report Affirms Ease of High End Prices

The much anticipated Case-Shiller report for the 5-county SF Metro Area just came out. Basically this report shows patterns for the entire SF Bay Area including comparison snapshots back to 2000 through the dotcom bust on through the great recession of 2008 and on up to July 2016.

The overall take away from these charts is that the higher priced home segment (houses and condos) has hit plateaus and is cooling down while the more affordable market homes are slowly appreciating. This conclusion is in line with other reports that have come out over the past month.

Our complete report is here.

All the numbers on C-S charts refer to a January 2000 home price of 100. Thus a reading of 228 signifies a price which has appreciated 128% above that of January 2000.

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However, the mid-price and high-price tiers have exceeded their previous peak values in 2006-2007, while the low-price tier, though climbing rapidly, is still well below its subprime-loan-fueled high point.

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The appreciation rate for higher priced homes was significantly lower this spring than in the previous 4 spring selling seasons, and has generally plateaued in recent months. This plateauing is not uncommon during the summer months.

The past 12 months:

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Since the recovery began in 2012:

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Long-term trends for the high home-price tier in the Bay Area, which predominates in most of San Francisco, southern Marin and Lamorinda/Diablo Valley.

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California Migrations Into State for Home Buying Not So True for SF

According to a September 25th article in The Wall Street Journal there’s a sizable migration of homeowners moving out of California where home prices are steeply rising to states like Texas and Arizona where home prices are much lower compared to California, and are staying low.

The article states that between 2000 and 2015 2.5 home sellers left California for every 1 buyer coming into the state. On the other hand Texas, Arizona and North Carolina are showing the opposite: more buyers moving in and fewer sellers moving out. Further, as the housing recovery quickened the migrations out of expensive states like California and Colorado have increased. Prices for homes in Texas compared to California were up to 40% cheaper.

However, according to my experience and the data in SF’s real estate dynamics buyers of homes in SF are not necessarily coming directly in from out of state. They go from rent to buy over a period of time. The demand for housing in the city still far outstrips supply and the good stuff is still being overbid. My buyers who are not trade-up buyers typically have relocated from out of state within the past 3-5 years. When they arrived they chose to rent while they learned the neighborhoods and decided whether they wanted to stay long-term.

Top Ten Cities for Home Values Zooming Skyward Over Past 30 Years

If you wonder at night what are the top ten cities in the US that have seen monster home value increases over the past 30 years, then we’ve got your answers here.

Despite home prices softening in San Francisco (along with apartment rental costs) this summer our city remains the big dog among cities in home market value increases. In fact, it’s NASA astronomical. If you bought a house in 1986 in SF for a median value of $160,955 you could sell that house in today’s market for $1,058,474—a very impressive return of 557.6%

Here are the Top Ten—from 10 to 1:

10. Miami, Florida

1986 median home value: $62,385

2016 median home value: $249,326

Return: 299.7%

9. San Diego, California

1986 median home value: $114,414

2016 median home value: $502,015

Return: 338.8%

8. Los Angeles, California

1986 median home value: $116,061

2016 median home value: $520,060

Return: 348.1%

7. Orange County, California

1986 median home value: $143,210

2016 median home value: $643,483

Return: 349.3%

6. Oakland, California

1986 median home value: $130,659

2016 median home value: $631,109

Return: 383%

5. Portland, Oregon

1986 median home value: $63,154

2016 median home value: $313,079

Return: 395.7%

4. Seattle, Washington

1986 median home value: $81,774

2016 median home value: $412,286

Return: 404.2%

3. Honolulu, Hawaii

1986 median home value: $120,199

2016 median home value: $607,003

Return: 405%

2. San Jose, California

1986 median home value: $154,787

2016 median home value: $923,315

Return: 496.5%

1. San Francisco, California

1986 median home value: $160,955

2016 median home value: $1,058,474

Return: 557.6%

The Mark Company: No New Construction in July

The July 2016 monthly report from The Mark Company (recognized authority on urban residential real estate sales and marketing, including in San Francisco) just came out. It’s interesting reading in that just as has been noted during this month’s round of blogs condo inventories are high, sales are slower (with some district exceptions) and there was no new construction affecting residential real estate in July. All this, according to expert SF real estate watchers, is an expected normalizing of the market.

The report starts off with this positive observation: No new construction inventory entered the market during July as we continue to see some signs of market normalization. Watch for competition to heat up as we approach the traditionally strong fall months and new product hits the market. San Francisco expects to add approximately 300 units by year-end.

Click here to view the complete San Francisco report as an online PDF.

Overvalued and Undervalued Housing Markets in the US

In the housing market across the US the five cities identified in the 2016 Forbes valuation report as being overvalued—no surprise—includes San Francisco. However, SF is last of the five which (in order) are: Austin, San Antonio, Phoenix, Las Vegas and San Francisco. The five most undervalued markets are: New Haven, Detroit, Hartford, Providence, RI, and Cleveland, OH.

Analysts at Fitch Ratings U.S. RMBS group (which produced the report) said that inventory is the major factor for the overvaluation in San Francisco, but that as well (for SF and the other four cities) increased income is stimulating price increases.

The criteria Fitch followed for determining overvaluation and undervaluation is: overvalued when home prices outpace the local economy; undervalued when home prices are below what the local economy can sustain.

San Francisco is experiencing a sputtering economy right now, which has put the brakes on price increases in the housing market in the luxury condo and housing sectors. Paragon Real Estate Group states this “cooling of a desperately overheated market is something closer to normal.”

What’s Hot District by District in SF Real Estate

Despite the fact that SF house and condo sales are slow this summer (with condo inventory very high and condo sales really down), there are areas catching fire in new sales.

Check out the chart below which depicts each SF district by percentage of MLS listing going into contract in the second quarter of 2016. Looks like the Sunset district (D2 on the chart) is really burning up the sales now with 124 houses sold.

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The frostiest area is the city’s largest condo market by sales: District 9 (includes Bernal Heights, the Central Waterfront / Dogpatch, Inner Mission, Mission Bay, Potrero Hill, South Beach, and South of Market (SoMa)). Yet despite having the most condo sales the district overall is the coolest by % of listing accepting offers. And new condo projects are being built up there. On the hotter side for D9, the house sales there were the second highest in the city.

Sales of TIC units have dropped 50% year over year and they are the weakest property segment in this chart.

More Slowdowns in Condo Sales in SF

We recently wrote on the summer seasonality slows in the San Francisco home market. And now the Mark Company Trend Sheet for June 2016 that just came out is affirming that new project condo sales are slowing—perhaps dramatically. While the Mark Trend Sheet could be somewhat incomplete (projects could be coming out of escrow rather than units going into contract which is how the sheet records sales) its showing that the 32 new construction condos that sold in June are down 66% year over year. There are now 1195 new project condos on the SF market, up 47% year over year. Based on that rate it looks like there are 37 months of new condo inventory on the market.

Comparing the February MCTS with the MCTS June sheet (see image below) its apparent that some slowdown is afoot. I have to emphasize “apparent” as all the info may not be here. For instance the Mark Company’s ultra luxury project 181 Fremont’s marketing commencement date was 2 months ago in May. But there’s no status on sales for 181 Fremont.

MCTScompareThe Mark Company Trend Sheet is also available as a PDF here.

June ’15 to June ‘16 Home, Condo and TIC Sales in San Francisco

What’s happened in home, condo and TIC sales over the past year in San Francisco, ending on June 30, 2016? Well…lots, as you will see below in the sales charts built on information from SF’s Multiple Listing Service.

We’ll start off with a colorful image that depicts all the neighborhoods of San Francisco.

This is followed by a first chart that illustrates the overall SF sales. Note how home sales in the $750,000 to $999,000 range comprise the most sales: 628 total. The least amount of sales is condos at $10 million and over. In 2013 the home sales for $500,000 to $749,000 were the biggest segment.

Then the SF home sales activity for the past year is presented by charts illustrating individual city districts and neighborhoods. The analyses are broken out by number of transactions in designated sales-price segments.

Note that median sales prices will change every time the time period or neighborhoods included in an analysis change.


What’s Up With Current SF MLS Listings?

How about a snapshot view of SF’s listings on the MLS presented in one easy-to-read chart? Take a look below. It’s an interesting perspective hot from the records of  June 27, 2016.

Here’s my take on these numbers.

Districts 3 and 4 are growing dense with single families, which explains why there is a higher volume of house inventory there.

District 5 is where you find the largest concentration of 2-4 unit buildings, with the Potrero, Mission, Bernal and Dogpatch neighborhoods coming in under District 5 for most 2-4 unit listings.

Notice how the Soma, South Beach, Yerba Buena Districts have no single-family homes. These neighborhoods are dominated by high-rise construction and mid- rise loft buildings. It is also where many of our new home developments are located. These new high-rise buildings typically do not post their inventory in the MLS. If they do post inventory, the volume of listings available in those neighborhoods would show much, much higher on this chart.

San Francisco Neighborhood Map

San Francisco & San Mateo County District Map

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