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San Francisco Market Report

Britain’s June vote to exit the EU has already had an impact on the market in the US, including here in San Francisco. Mortgage rates have dropped almost a quarter of a percent, making the monthly payments on our pricey housing slightly more affordable. The result is that it will support continuing increases in sales prices, as decreases in interest rates always do. For example, a $1,000,000 loan at 3.75% costs $4,631/month, but at 3.5% you can borrow $1,032,000 for the same monthly payment. And monthly payments are what buyers focus on.

The Federal Reserve Bank of San Francisco published its upbeat Economic Forecast in June which indicated continued strong job and economic growth, continued low business and mortgage interest rates (this was published prior to the vote in Britain), coupled with historically low unemployment and inflation below the Fed’s target of 2%. The conclusion is that they see Gross Domestic Product growth around 2% for the year, at a “pace consistent with moderate ongoing expansion, which we expect to continue over the next few years.”

Of interest was their findings about the cause of the lower labor force participation rates that have been occurring since 2001 that have been noted by many previous reports. It turns out that because of the considerable shift in the wage gains during this time period to the higher income households, that these households have fewer multiple earners. On the opposite end of the spectrum, lower wage earners continue to need multiple earners to make ends meet.

The Fed report hypothesizes that this is a shift that the upper-income households have made in the work-life balance and that the workforce participation in this group may remain low. It is also mimicked by the young workers in upper-income households, where labor force participation is also significantly lower than in the general population.

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San Francisco Single Family Home median prices have been hovering between $1,352,000 and $1,380,000 for the past four months since peaking at $1,400,000 in February 2016. That was the second time median prices had hit that number, first back in May of 2015. With the drop in interest rates, we could break through that median price soon because that drop from 3.75% to 3.5% finances another $45,000 in the loan amount for the same monthly payment.

The Condo/Loft Median Sales Price hit an all time high of $1,180,000 in June 2016, up 4.9% from June 2015.

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Resale Condos-Lofts jumped 59% in both Days on Market and Months Supply of Inventory compared to June 2015, but both are still in strong sellers market territory.

Single Family Homes are up slightly in Days on Market from 16 to 20 both for May to June, 2016 and from June 2015 to June 2016. Months Supply of Inventory dropped from 2.3 in May to 1.9 in June 2016 and was also down from June 2015’s 2 months. Both market indicators continue to show a strong sellers market.

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Single Family Homes New Listings dropped by 55 from May to June 2016. It was also off 61 compared to June 2015. Of additional continuing importance is that the year-to-date number of new listings is down 60 from year-to-date 2015, a 4.1% decline. This helps explain why Months Supply of Inventory is lower than last year.

Resale Condos/Lofts had the reverse trend, with 1 more new listing on the market in June than May, 2016, and 27 more new listings in June 2016 than June 2015. And, significantly, year-to-date new listings are up 167 over year-to-date 2015, which represents a 10.3% increase in inventory. This helps explain why Months Supply of Inventory and Days on Market has risen sharply for Resale Condo/Lofts.

No Mass Exit from San Francisco on the Horizon

At last month’s SFARMLS Building Boom forum, the Bay Area Council presented its latest poll of Bay Area residents, and said that the results show that a third of Bay Area residents “are likely to bolt the region in the next few years”. In truth, that is a big overstatement of the poll results.

What the poll actually asked for was a response to: “I am likely to move out of the Bay Area in the next few years.” What people answered was: 13% said they strongly agree with that statement and 21% said they somewhat agree.

That is certainly not a third of the residents saying they are likely to “bolt” in the next few years. Exactly where would they go? Jobs are here, families are here, the great weather is here. There’s a reason our population is growing – this is a fabulous place to work and live, in spite of high prices and congestion.

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May 2016 Central San Francisco Market Conditions

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District 5’s (See SF Districts Map Here) April numbers continue their strong upwards trend with their highest ever median sales price of $2,287,500. Year-over-year, the median price is up 8.9%.

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Resale Condo/Loft Median Prices

Resale condo-loft median prices have resumed the downward trend that started last September with a brief uptick in January and February. hey dropped 2.3% from March to April, landing at $1,245,000, which is the lowest median sales price since April 2015. They are down 0.4% year-to-date and 9.6% since their peak at $1,377,000 September 2015.

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While Single Family Homes Days on Market inched up to 17 in April, they are still at historically low numbers.

Days on Market for Resale Condo/Lofts dropped from 19 to 16.

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Single Family Homes Months Supply of Inventory dropped slightly to 2.4 from March’s 2.5 and up from April, 2015’s 1.7.

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This April there were the same number of single family home listings as in April, 2015. Over all, there have been 136 new listings in District 5 this year, one fewer than last year.

There have been 43 fewer condo/loft listings brought on the market year-to-date in 2016 than 2015. This is a 26% drop. And this is the first time in four years that the number of new condo/loft listings was lower in April than March.

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May 2016 Market Report | San Francisco

We saw first quarter median Single Family Home prices in San Francisco jump with their biggest percentage increase (5.6%) in a decade, and in April’s numbers continue this strong upwards trend. The median price in San Francisco was $1,380,000 in April, the highest ever, and a 4.5% increase over March (yikes!).

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Resale Condo/Loft Median Prices

Resale condo-loft median prices reversed their first quarter downward trend and went up 2.2% to end at a tie with the previous high median price of $1,125,000, back in June 2015. They are up 1.5% year-to-date.

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Both the single family homes and resale condo-loft days on market inched up in April, moving from 16 to 21 days for homes and 21 to 27 days for condos.

This compares to April, 2015’s 14 days and 18 days. So, up a bit from March and up a bit from April, 2015, but still incredibly low days on market.

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Single family homes months supply of inventory is up slightly to 2.3 from March’s 2.2 and a little above April, 2015’s 1.8.

Likewise, for resale condo/lofts, months supply inched up to 2.6 and over last years’ 1.7. It is the fourth consecutive months of rising inventory, something to be watched, but still a strong seller’s market.

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In April 2016, there were 15 more single family homes listed for sale than a year ago, and this was the first month this year to exceed the number of listings in 2015. We are still down slightly, 1.5%, in the number of new listings homes year-to-date over 2015.

Resale condo-lofts also saw fewer new listings in April 2016 than in 2015, however, overall there have been more new condo/loft listings in 2016 than in 2015, a rise of 6.7%. This helps explain the longer Days on Market and higher months of inventory.

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The best way to get answers to any questions you have about our market or timing a successful sale…contact me.

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Maximum Underbid | Russian Hill Property Wins | List $3.2M, Sold $2.6M

Closed on the last day of 2015 was this 3 bedroom Russian Hill condominium with dramatic views. Listed for just shy of $3.2M and sold 18% under asking, at $2.6M, it takes top spot on the top 10 Podium Underbids of the week for San Francisco.

Interesting to note is that out of the top 10 underbids that closed in the past two weeks, 7 of them are condos and 3 of them are single-family homes (That’s R.E. 101 in college…supply/demand).

And here are the rest.

Happy New Year everyone!

Address BR/BA/Units List Price Sold Price Underbid
1070 Green Street #1402 3/2.5/1 $3,195,000 $2,600,000 -18.62 %
151 Everglade Drive 3/3/2 $1,599,000 $1,400,000 -12.45 %
68 Landers Street 2/2/1 $1,499,000 $1,315,000 -12.27 %
400 Beale Street #1407 2/2/1 $1,150,000 $1,053,000 -8.43 %
3315 Pierce Street 3/3.5/3 $2,699,000 $2,500,000 -7.37 %
33 Perine Place 2/2/1 $1,500,000 $1,400,000 -6.67 %
425 28th Street 3/2/1 $1,695,000 $1,588,888 -6.26 %
355 1st Street 2/2/1 $1,595,000 $1,500,000 -5.96 %
739 48th Avenue 3/2/1 $995,000 $945,000 -5.03 %
1760 Ofarrell Street San Francisco, CA 94115 2/2/1 $879,000 $835,000 -5.01 %
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August Case-Shiller Index | San Francisco Bay Area

The new S&P Case-Shiller Index for August was just released on Tuesday. The prices for homes in the upper third of prices – which dominate in most of San Francisco, central and southern Marin, and central Contra Costa – ticked down a tiny bit in summer, exactly as they did last summer. These short-term fluctuations are common and not particularly meaningful until substantiated by a longer-term trend.

Since Case-Shiller’s SF Metro Area covers 5 counties, it should be noted that not all the markets within the Area move in lockstep: activity and appreciation rates can vary significantly.

As is clearly illustrated below, for the past 4 years, spring has been the big driver of home-price appreciation. Prices generally plateau in subsequent seasons until the next spring arrives. For the past couple years, the spring selling season has started very early, in late January or early February, due to the incredible weather we’ve had in those months. El Niňo, if it arrives, might move the spring pick-up in sales back to mid-March/early April in 2016.

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This second chart illustrates the huge burst in prices this past spring. It’s not unusual for the market to slump a little during the summer holidays, almost in exhaustion after the spring frenzy. We’ll have more autumn statistics soon when October’s MLS data comes in, but Paragon has been experiencing its most active autumn selling season in its history in 2015.

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And here are 3 longer-term charts for each of the 3 Case-Shiller price tiers for the 5-county San Francisco metro statistical area. As can be seen, the different price tiers had bubbles and crashes of radically different magnitudes in 2006 – 2009, but as far as total appreciation since the year 2000, all of them display very similar appreciation rates.

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That ought to do it for your data craving for a while. You might consider following this blog via email (link below) or get on the Twitter train @theFrontSteps, so you don’t miss a beat of San Francisco Real Estate.

San Francisco Home Prices Remain High, affordability index stays low

What an interesting Summer! We are still in the midst of a hot real estate market where homes are getting quickly snatched up, buyers are stretching to pay over asking. The recent stock market gyration and Chinese currency devaluation add some uncertainty to the economy, and later this month the Fed is going to tell us where interest rates might go, but the San Francisco real estate market is steaming along.

The Housing Affordability Index (HAI), an index released periodically by the California Association of Realtors to measure the percentage of households that can afford to buy the median priced single family dwelling, shows all Bay Area counties saw declines in their affordability index reading, and San Francisco is now only 2 percentage points above its all-time low of 8%, last reached in Q3 2007.

The median house price, mortgage interest rates, and household income are the 3 major factors affecting the Housing Affordability Index. A picture is worth a thousand words, so here are the graphs:

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Interest rates play a huge role in affordability, and it is certainly reasonable to be concerned that affordability percentages are now hitting such depths while interest rates are also close to historic lows. For example, in 2007, when affordability percentages hit previous low points, prevailing mortgage interest rates were approximately 50% higher than today’s. When interest rates start to rise – when and how much being the real questions – there will be potentially dramatic effects on affordability, which could presumably affect demand and prices.

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As the HAI is approaching the record low, don’t hit the panic button yet. I’d like to show a unique perspective from John H Dolan, the sole market maker for the Case Shiller home price futures contracts that are traded (very infrequently) on the Chicago Mercantile Exchange.

San Francisco home prices have been rising sharply but how much higher might they run? Are they in a bubble? When, and how, will we know? Homeowners want to stay on top of expectations, while potential home buyers don’t want to see the market run away from them. While there may be many opinions, there is also one public market that home owners and buyers can access, to see what the market “thinks”.

The CME (Chicago Mercantile Exchange) has listed futures contracts for a number of the Case Shiller indices, including San Francisco (SFR), since 2006.^1 Essentially, the contracts allow participants to either view, or place a bet, on where the Case Shiller SFR index will be at various points over the next few years.^2 Since these housing contracts cash-settle on the value of the index in the settlement month (much like the S&P 500) it has been argued that traders may be “betting” on where they expect the index to be.^3 People can freely view the contract prices as a component of their own home price forecasts.^4

The graph below shows both the historical Case Shiller SFR index (in black), bids (blue axis), offers (red pluses), and contract closes (in purple). Finally contract values for Dec ’14 are shown in red.

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There are sets of 11 contracts (one for the Case Shiller 10-city index, and one for each of the ten components. San Francisco (SFR) is one of those ten.) While index levels react more slowly, and are backward looking, contract prices can change daily. While forward prices have been rising over the last few years on better-than-“expected” home price gains (at least as expected by this market), contract prices (particularly longer-dated expirations) have fallen this month.

While the SFR home price index has nearly doubled over the last five years (from a low of 117.42 in May 2009 to 214.53 this month), forward market prices are consistent with much more muted gains in 2016 and 2017. For example the 225.0 bid and 229.0 offer on the Nov ’16 contract are 4.9% and 6.7% above today’s level. The Nov ’17 contract is priced for an additional 4.3% gain the following year.

As such, expect headlines to note the slowdown in SFR home price appreciation (HPA) over the next year.

While contract prices for Nov ’16 and ’17 are higher than where they were at Dec ’14, they are off 4-5 points in the last few weeks as news of the Yuan devaluation and stock market gyrations have dampened expectations. The recent decline in prices is indicative that futures contracts are not predicators of the future, but reflective of expectations (that change as news occurs). That is, just as prices for oil futures dropped $50 in the last year as expectations changed, home price futures contracts also move.

In addition to just viewing bids and offers, those that either want to hedge an exposure (or future purchase), or who have a strongly different view of forward index levels can trade contracts to lock in forward prices. For example, someone thinking that SFR index levels will be lower by Nov 2016 might look at selling Nov ’16 contracts, while someone expecting another 10% annual gain might prefer to buy contracts.

Contracts have notional value of $250 * index price, so at a price of 225.0, the notional value is $56,250. A one point move in the futures price (e.g. from 225 to 226) is worth $250.

A trader would have to have a futures account, but the CME would be the legal counterparty to any trade. Margins tend to be less than 10% of the notional value.

As such, someone with a more bullish outlook in 2014, or someone looking to buy a house in 2015/16, could have (hypothetically) bought Nov ’16 SFR futures near 198 (mid-market price that day). With the contract 225 bid today, the buyer wouldíve made $6,750/contract

The contracts have been extremely thinly traded (e.g. there was only one SFR contract traded last month) so caution and patience are important. The markets are often quoted 1×1 (one contract bid/ one contract offered) so market orders for more than one contract are discouraged. The market-maker has expressed willingness to trade larger size, so best to contact him for larger orders.

Finally, contracts are traded on the SFR index which covers a wide area. Prices in any one neighborhood might diverge from the overall index levels. In addition, there’s (of course) no hedge for over-paying for a house.

Net, CME Case Shiller home price futures offer a useful tool for forecasters in framing their housing outlook. Unlike surveys, prices are continually updated, and traders are putting their money behind their bids and offers. The current thinness (limited trading) of the market suggests that CME prices might be one tool (but not the only) that homeowners can use to see what the market “thinks” about where home prices are headed.

1-For those new to home price indices, the Case Shiller index is the grand-daddy of home price indices. The indices were originally introduced in the early 1990’s by Nobel Laureate Robert Shiller and Carl Casein, and remain one the oldest that are currently being used. CS indices are often cited in news reports and in the financial press (e.g. CNBC). The CME has contracts for the Case-Shiller 10-city index (CUS) and, in addition to SFR, each of the other 9 components: (BOS, CHI, DEN, LAV, LAX, MIA, NYM,SDG, and WDC).

2- There are 11 expirations that today range from Nov 2015 to Nov 2019 (although some contracts do not often have posted prices).

3- Case Shiller indices are released on the last Tuesday of every month

4- e.g. Bloomberg

Big thanks to John H Dolan for the information, and new point of view! Visit HomePriceFutures.com for more analysis on home price derivatives.

That’s it. My head is spinning.

Ocean Beach Gem

SOLD | 624 46th Ave | Outer Richmond

I am pleased to announce the successful buyer representation on this awesome ocean view home in the Outer Richmond at 624 46th Ave.

The day it came on the market my client sent me a text, and I got him in a couple hours later. While I was standing on the bluff checking the surf, we wrote an offer, I contacted the listing agent, and I presented our offer via mobile device. I went surfing, and by the time I got back on land, our offer was accepted…and why wouldn’t it be!?

Great work and thanks to everyone involved in this sale, particularly my assistant, and congratulations to my buyer that is going to make this one amazing home. I’m totally jealous, and can’t wait to see what becomes of it.

Act fast, go big, and you too can prevail in this insane real estate market of San Francisco.

624 46th Ave, Outer Richmond Buyer Representation

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2191 32nd Ave, San Francisco CA Hits MLS

[Update: Sold! Sales Price $871,500. Six offers.]

It doesn’t get better than this in the Parkside. Twenty one ninety one (2191) 32nd Ave hits MLS tomorrow, and you are all getting the first look. That is unless you’ve been following me on Instagram (@theFrontSteps).

Asking price for this most excellent home in the Avenues of San Francisco will be $785,000, and we’ll be open this Sunday from 2-4pm. Come take a look, and send your friends and family. It goes in MLS tomorrow, but we aren’t opposed to loyal readers getting a jump on the rest of the buying population.

Property Details:

Fabulous Parkside Center Patio Rousseau and Tudor Style home. Meticulously maintained to preserve original details, this home’s main level boasts beautiful hardwood floors, formal entry, formal dining room, and formal living room w/ arched doorways, high exposed beam ceilings, wood burning fireplace, original tile bathroom, updated kitchen, skylights, center patio, balcony, and ocean views. Downstairs is a large 2 car garage w/ additional storage, laundry, and bonus room (media room / master suite) w/ fireplace, hardwood floors, bathroom, and access to quaint backyard. Parkside / Sunset buyers, you will not want to miss this one. It is like nothing you would have recently seen available on our market. No joke.

Tuesday In The Avenues (442 41st Avenue Open 11-12:30)

It’s another fine Tuesday upon us. Yesterday’s stock market rally may put a glimmer of hope in everyone’s eyes, and what better way to celebrate than with a tour of a great house we just put on the market. It is officially a “broker tour” open house today, but we’re inviting all of our readers to come have a look at 442 41st Ave anytime between 11am and 12:30pm.

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This is a great single family home in the Outer Richmond with 4 bedrooms and 2 baths (1 bed, 1 bath unwarranted), hardwood floors, fireplace, formal living room, formal dining room, landscaped back yard, new redwood deck, ocean views (from the roof), 2 car tandem parking, washer & dryer, and an excellent location close to Lincoln Park golf course, the Cliff House, Land’s End, Ocean Beach, the Balboa Theatre, Chino’s Taqueria, Sea Cliff, China Beach, Sutro Baths, Louie’s Restaurant, and so much more! The house is also on the east side of the street so you can hang out in your back yard and be warm even when the wind is blowing.

This is a great house and you really should come take a look. Open today from 11-12:30 and Sunday we’ll be there from 2-4pm. Please come take a look. Tell your friends, forward this post, and spread the good word. Mama needs a new dress, so let’s get this home sold.