Time For An Intermission

Like Warren Miller always says, “Now it’s time for one of these…Intermission”. In my case, an intermission from blogging. Back to normal programming in early 2016.

This site will also be undergoing a redesign, so if you happen to land here when it looks totally weird, and possibly not working properly, please be patient, and check back later. Or contact me.

Happy New Year Everyone! Hope your holidays are going great. Here is to much success, fun, good vibes, and great times in 2016.

If you need help buying or selling Bay Area real estate, please contact me, and I’ll be in touch asap.


New Case-Shiller reflects continuing appreciation of SF Bay Area home prices this spring

The new April Case-Shiller Home Price Index for the Bay Area counties of SF, Marin, San Mateo, Alameda and Contra Costa, released 7/7/15, reflects the middle of our spring market. (The Index is released 2 months after the month indicated.) All home price tiers saw further increases. Since the April Index is a 3-month rolling average and the market continued to heat up as spring has progressed, we believe the May and probably June Index reports will probably show further increases.

For the past 4 years, the Spring selling seasons have been the major drivers of home price appreciation. The market typically cools and plateaus (and sometimes even declines a little) once the Summer season begins.

Here are three charts reflecting the “high price tier” of homes, which best applies to the San Francisco, Central & Southern Marin and San Mateo markets. Charts illustrating the low and mid-price tiers follow.

The past 12 months: May & June C-S Index reports may well show further spring selling season appreciation.


Since the recovery began in 2012:


Longer-term view:


Bay Area low and mid-home-price tiers. As one can see, different price tiers experienced bubbles, crashes and now recoveries of significantly different magnitudes. The lowest price tier, which was hit hardest by subprime lending, had by far the biggest bubble and crash, and though it has experienced a very strong recovery since 2012 is still far below its 2006-2007 peak value.

Bay Area low-price-tier homes – under $549,000:


Bay Area mid-price-tier homes – $549,000 – $903,000:


And this chart below reflects San Francisco-only median house and condo sales prices reported to MLS as of July 1, 2015. It has been a torrid spring market in the city, one that, generally speaking, is outperforming the overall Bay Area market (except for Silicon Valley). Note that median sales prices are affected by other factors besides changes in “fair market value.”


As for how the Summer is playing out, we’re definitely in a bit of what I call the Doldrums. Homes that are priced right are selling briskly, homes that aren’t are still looking for buyers. Summer is typically a great time to find the closest thing to a deal that you can find, but we all know a “deal” doesn’t really exist here.

The long and short of it is that we are in an unprecedented boom, so if you’re sitting on a ton of equity and looking to sell, or trade up, your timing is excellent. Give me a shout, and we can chat about your options.

Alexander Clark
Paragon Real Estate Group

SF Real Estate Market – Animated Charts

Against my will, I’m back from vacation, and back at it. So it’s on with the real estate show.

This first chart below is a very simplified, approximate and smoothed out chart graphing the percentage ups and downs in San Francisco home prices over the past 30+ years. We have other charts that illustrate more exact changes in median sales prices, average dollar per square foot values, and Case-Shiller Index values.


San Francisco median home prices since 1993, by property type (houses, condos and TICs), in thousands of dollars ($950 = $950,000). Changes in median price are not perfectly correlated to changes in home values since median prices can be affected by a variety of factors. Still, the overall trend line is certainly reflective of market conditions.


Factors behind the market: 30-year average mortgage interest rates for conforming loans since 1981, per the FHLMC (Freddie Mac).


Factors behind the market: San Francisco employment trends since 1990.


More animated charts to come. Let me know if you like them, or not.


New Case-Shiller Shows Another Jump In Bay Area Home Prices – Up 37.5% Since 2012

The new Case-Shiller Index report for the 5-county San Francisco metro area, for March, is showing the same acceleration in home prices that buyers and sellers are experiencing in the market. The 2.4% increase from February to March 2014 is the largest since spring 2013, and further significant increases are expected in the Index reports for April and May when they come out in the next two months. Nationally, home prices saw only a .17% increase month over month, and Case-Shiller’s 20-City Index showed a .87% increase, so San Francisco and the Bay Area is strongly outperforming the rest of the country in home price appreciation.

Since the market recovery began in earnest in early 2012, northern Bay Area home prices have appreciated approximately 37.5% through March, according to Case-Shiller.



That’s amazing. Truly amazing.

Home Ownership as an Investment, Home Prices, Inflation, Leverage & Home Equity

First and foremost, any home purchased needs to work as a home: it fulfills your housing needs at an affordable monthly cost – ideally, a cost, after tax deductions and principal pay-down, less than or similar to that of renting the property. However, though it cannot be compared on an apples-to-apples basis to investments such as stocks, bonds and CDs (that you don’t live in), it’s worth looking at the issue of homeownership as a financial investment as well.

Home-Price Appreciation vs. CPI Inflation since 1988

This chart compares, over 25 years, the amount of inflation per the Consumer Price Index (CPI) to price appreciation for high-price-tier homes in the 5-county San Francisco Metro Area per the Case-Shiller Index. (Most of the City of San Francisco’s housing is in the high-price tier, the upper third of Bay Area unit sales.) In this chart, 1988 equals a price-value of 100; 127 equals a price 27% higher than the price in 1988 for the same goods or house. CPI inflation is relatively slow and steady: the average across the past 25 years is a little less than 3% per year. Home prices, however, jump dramatically up (appreciation) and down (depreciation) depending on the market cycle, but average appreciation from 1988 to mid-2013 was about 5% per year – though this calculation can vary greatly by the exact start and end dates chosen.

An average SF Metro Area home purchased in 1988 appreciated by 244% as of July 2013, while the overall CPI inflation rate was 97%. If the home had been sold at the recent bottom of the market, the difference would have narrowed to 165% appreciation vs. 95% inflation. Purchase and sell timing always matters and if one has to sell at the bottom of the market, it affects the return on any investment. As the chart illustrates, home-price appreciation usually outpaces inflation by a significant margin over the longer term: this is a good thing for homeowners and doesn’t include other benefits such as living in the property and the capital gains exclusion on the sale of a principal residence.

This analysis applies well to homes purchased with all cash and no financing. Leverage alters the picture substantially.

Leverage (Financing), Inflation and Home Equity Growth

If one leverages one’s home purchase by taking out a loan, then the growth in one’s home equity dramatically outpaces inflation over the longer term. For the sake of simplicity, in the example above, we’ll assume that home price appreciation and inflation both run at 3% per year, and that the buyer put down 20% in cash plus closing costs, and financed the remaining 80% with a 30-year fixed rate loan. In this scenario, each year that the inflation/ home appreciation rate is 3%, one’s home equity asset grows by about 15%, plus the principal repayment on the outstanding loan (which is a major component – like a forced savings account – in the growth of equity over time). Indeed, the higher the inflation rate, the greater the equity growth. If home price appreciation outpaces inflation as well – as it has over the past 25 years – that accelerates the increase in home equity further. Moreover, the financing cost is currently subsidized by the mortgage interest tax deduction, if that applies to your financial situation.

This is why, using reasonable leverage, real estate is typically considered a good long-term investment – short-term can be much riskier – as well as an excellent hedge against inflation. Of course, if leverage is abused as it was in the years of subprime lending, underwriting standards decline, predatory lending and home-refinancing frenzy (i.e. “using one’s home as a piggy bank”), other risks arise.

In earlier times, when people didn’t move around as much, one bought one’s home, paid it off over the years and when retirement came, had a home owned free and clear – a huge financial asset to be used as appropriate.

Ongoing Homeownership Costs vs. Rental Costs over Time

In this chart, the increase in the annual cost of homeownership with a fixed-rate loan is compared with the increase in rent at a 3% inflation rate, and the increase in rent of a home subject to San Francisco rent control, where annual rent increases are limited to 60% of CPI. As seen, if one locks in a fixed mortgage interest rate, the increase in ownership cost is limited to the increase in property tax costs (limited under Prop 13) and maintenance expenses, while the entire rental cost may be subject to annual raises. Over the longer term, one’s ownership costs become more and more attractive when compared to rental housing costs subject to inflation. If one owned the home for the full 30-year loan period, the monthly mortgage payment itself would disappear.

We have generated two sample rent vs. buy scenarios for San Francisco here:

2-BR Apartment Rental vs. Condo Purchase and 3-BR House Rental vs. Purchase

And you can perform your own rent vs. buy scenario calculations here, using your own financial circumstances, assumptions and projections: Rent vs. Buy Calculator

Important caveats: Trying to compare buying a home to other financial investments on an apples-to-apples basis is impossible, because there are so many other variables at play: the use and enjoyment of the home, how the cost of homeownership compares to renting, physical condition decline over time (without further investment), risks and returns on other types of investments, home tax deductions, the capital gains exclusion on profit from a principal residence sale ($250k for single owner/ $500k for couple), market timing and other factors. All the analyses above are simply sample scenarios, looking at homeownership from a number of angles using a variety of assumptions. It is unknown whether they will apply to future trends.

As said in the first line of this report, first and foremost, any home purchased needs to work as a home: it fulfills your housing needs at an affordable monthly cost. If that’s where you start, with a fixed rate loan, and you don’t refinance out growing home equity, and you don’t have to sell during a market downturn (which, admittedly, isn’t always possible to avoid), then you should come out all right and more often, very well.

These analyses were performed in good faith, but may contain errors, are not warranted and should not be exclusively relied upon. Tax law and other factors referred to are subject to change. All information provided herein should be carefully reviewed according to your own circumstances, plans and economic projections with a qualified financial adviser and loan agent.