A changing market? Have SF home prices reached a plateau?

The market usually does slow down at least a little in mid-summer – a question has come up: is this possible slowdown caused by listing agents continually pushing the envelope on pricing for new listings or pricing to the last, highest, frenzied sale, a move that buyers are now finally starting to resist? It may be, that without buyer demand really slackening for homes deemed “reasonably” priced, we have come to a point, at least for the time being, that buyers are no longer willing to pay new tippet-top peak prices.

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Have prices reached a plateau? Monthly median price stats are subject to fluctuation without great meaningfulness (which is why I prefer quarterly or longer periods), but after the big jump early in the year, the median sales price has been within a 4-5% spread (not a huge spread for monthly home prices) for 5 months, Including a drop from April-May. The idea of a plateau contradicts the recent Case-Shiller Index report, but the Index is about 3-5 months behind current realities, San Francisco is only a tiny part of the Index and the city has outperformed C-S since the turnaround began – having appreciated so much faster than other places, we may be due a flattening of appreciation before other areas. And that also may be true for different SF neighborhoods – since they have rebounded at different speeds, some may be plateauing and others are still appreciating.

At this point, this is speculation and it won’t be clear for a while – these things only become clear in retrospect – because spring median prices sometimes spike and summer prices drop a little as some of the higher end market checks out for the holidays. And median sales prices are not perfect correlations of changes in market value, being affected by a number of other factors, including seasonality. Anecdotally, we are hearing stories of the market not responding to homes priced at the top (even if “justified” by another recent sale), and also stories in which the winning bidder offered a huge amount, sometimes hundreds of thousands of dollars, more than what the second highest buyer was willing to pay – i.e. the winning buyer ultimately paid much more than necessary to win the deal.

The number of expired/withdrawn listings is also increasing, though not to some crazy level yet.

So it’s worth considering, that we “may” have reached a plateau or bumped into a ceiling, transitioning into a somewhat different market. If we are in a transition, the market will be schizophrenic for a while: some buyers acting one way and another growing group of buyers acting another.

Summarizing the charts above and below:

  • The San Francisco Median Home Sales Price has leveled off, dropping somewhat from an April-May peak. (Chart above)
  • Buyer demand is still extremely high as measured by Percentage of Listings Accepting Offers.
  • Inventory is still extremely low as measured by Months Supply of Inventory and Units for Sale.
  • The number of Expired & Withdrawn listings climbed in July and was about 19% higher than July of 2012 (though less than half the number of July 2011). The main reason why listings expire or are withdrawn from the market is that buyers have concluded they are priced too high.
  • The July snapshot makes it clear that the market is still very strong by any reasonable measure, even if it might be on the cusp of a transition to a somewhat less fevered state.
  • Demand, as measured by percentage of listings accepting offers, is still very high:

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    Months Supply of Inventory is still very low:

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    The number of homes for sale is still very low:

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    The number of expired and withdrawn listings has been increasing:

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    Looking at July’s sales, mostly ratified in June, the market is still very hot:

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Case-Shiller Home Price Index Up Again in May

Note: Case-Shiller Home Price Indices for “San Francisco” are for a 5-county area, of which the city’s housing market is a very small part. Since they are published 2 months after the month of the Index, are 3-month rolling averages, and the time between offer acceptance and closed sale typically runs 4-8 weeks, Case-Shiller is generally 3-6 months behind the market itself, i.e. when offers are being negotiated in the present. Case-Shiller publishes 4 main indices for SF Metro Area houses: an aggregate index for all price ranges, and then one index for each third of unit sales – low price, middle price and high price tiers.

The aggregate C-S Index for the SF Metro Area is up approximately 30% – 34% from its low point, but is still approximately 20% below its peak in 2006. Please note that for a drop of 30% to be recouped, the increase must be about 43%.

When the market fell from its peak in 2006-early 2008 (different areas and different market segments peaked at different times), the scale of the decline varied widely, mostly by price point. With the recovery that began in 2012 and has accelerated in 2013, the magnitude of the price recovery, as compared to previous peak values, has also varied by price point and area.

The lowest price range (terribly affected by foreclosures and distressed sales) fell most dramatically – an approximate 60% decline from its peak. It is now recovering dramatically on a percentage basis – up 38% from its low point – but is still way below its 2006 peak. It simply has much more loss to make up.

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The upper price range (the top third of unit sales) in the 5-county metro area fell much less than the 2 lower price tiers (low and middle) during the bubble pop. On a percentage basis, it’s increase from its low point – about 25% — is not as great as for the lowest price tier, but is now getting close again to its previous peak value. In the city of San Francisco itself, many neighborhoods have now reached or surpassed previous peak values reached in 2007-2008.

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This chart below illustrates the short-term monthly changes in the C-S high tier price index: the recovery in 2012 accelerating in 2013. May’s reading jumped 3.7% from April’s.

Case-Shiller_High-Tier_2011

And then looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area: many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices and that the rate of appreciation accelerated in the March-May timeframe. Note that median sales prices and C-S Index numbers do not correlate exactly.

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Real Data SF – July 2013 Newsletter: Of Bubbles and Froth

The other day I was talking to a business-savvy fellow who has been looking to get into the real estate market since 2009. Back then, he recounted, everyone thought he was crazy to want to buy something. Ultimately he didn’t. Recently I introduced him to some clients of mine who were looking to partner up with someone on a “fixer” project. Surveying the $1 million prices “fixers” seem to be going for, he used the words “bubble” and “frothy” to describe what’s going on in SF right now.

Is he right? Let’s leave aside the question of whether we should consider homes “investments,” as we do stocks. (In general, I don’t think we should: click here for U.S. long-term home appreciation stats prior to the housing recovery.) Instead, let’s simply focus on whether, after 18 months of breath-taking price increases here in SF, we are already in a new housing market bubble.

Continue reading

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Case-Shiller: Different Bubbles, Different Accelerating Recoveries

Note: Case-Shiller Home Price Indices for “San Francisco” are for a 5-county area, of which the city’s housing market is a very small part. Since they are published 2 months after the month of the Index, are 3-month rolling averages, and the time between offer acceptance and closed sale typically runs 4-8 weeks, Case-Shiller is generally 3-6 months behind the market itself, i.e. when offers are being negotiated in the present. Case-Shiller publishes 4 main indices for SF Metro Area houses: an aggregate index for all price ranges, and then one index for each third of unit sales – low price, middle price and high price tiers.

When the market fell from its peak in 2006-early 2008 (different areas and different market segments peaked at different times), the scale of the decline varied widely, mostly by price point. With the recovery that began in 2012 and accelerated in 2013, the magnitude of the price recovery, as compared to previous peak values, has also varied by price point and area.

The lowest price range (terribly affected by foreclosures and distressed sales) fell most dramatically – approximate 60% decline – and though recovering dramatically on a percentage basis, is still way below its peak. It simply has much more loss to make up.

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The upper price range (the top third of unit sales) in the 5-county metro area fell much less during the bubble pop and with the recovery is getting close again to peak values:

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This chart below illustrates the short-term changes in the C-S high tier index: the recovery in 2012 accelerating in 2013:

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And then looking just atthe city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area: many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices and that the rate of appreciation accelerated in the March-May timeframe. This is also for both houses and condos combined, when the C-S charts used above are for house sales only.

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The Economist on Bubbles — Neat Interactive Chart Feature

The Economist has a good article (about the US real estate market not being in a bubble) and created a terrific interactive graph that allows you, by metro area (you have to click on San Francisco to add it to the graph), to compare home price changes in real terms over time, versus average incomes, and versus rents, from 1987 to 2013. San Francisco is at the top of the chart in percentage increase and increases in prices in real terms, but still rates right at the long-term average in home prices versus income and versus rents. The Economist was one of the very first to identify the housing bubble inflating – running strongly against the then current opinion of other pundits – so I think their opinion on whether another bubble is about to burst in the U.S. is worth hearing. (FYI: The do believe there are serious housing bubbles in certain other countries.)

”The verdict: in most markets houses are near or above their long-run values, but none looks bubbly. Price rises in Phoenix, Tampa and Miami have restored values only to their long-run averages. In Las Vegas they are still below that long-run average. Many things could trip up the housing recovery, from stalling job growth to higher mortgage rates; at the moment, a bursting bubble is not one of them.”

You can play around with the interactive chart, and you should read the article below the chart widget:

http://www.economist.com/node/21578927

Here are 3 of their charts with San Francisco added:

Home Price Appreciation in Real Terms (Adjusting for Inflation):

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Home Prices Against Average Income:

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Home Prices versus Rents:

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New Case-Shiller Index Report

The Case-Shiller Index for March just came out and showed a big jump, just beginning to reflect the surge in appreciation we’ve been experiencing in 2013. (January and February Index readings mostly reflect sales in late 2012.) The March reading was 3.5% higher than February (last month) and 15% higher than March 2012.

The Index is for the 5-County SF Metro Area, not just for the city of San Francisco, and since it reflects a 3-month rolling average, is published 2 months later and sales close 4-8 weeks after the offers are negotiated, it is typically 3-5 months behind the actual market on the street. I would expect another significant jump in April’s Index.

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The complete Paragon report on the Case-Shiller Index is here: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF

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February Case-Shiller Report Released

The small decline in the Index reading from December 2012 to January/February 2013 is due to seasonal market factors, not a decline in values, and occurs every year. Generally speaking, January and February sales reflect offers accepted in the holiday season period from Thanksgiving to early January, and since the higher end of the market tends to check out for this period, sales prices in the first 2 months of the year are typically lower. Based on the heat of the market since the year began, we expect to see a similar pop in C-S values in March and April that we have already seen in median sales prices.

Note: The numbers on the 2 charts below are based upon the January 2000 value of homes being calculated at 100. Thus the number 144 signifies a value 44% above that of January 2000; the number 184 signifies 84% above January 2000. However, a decline from 184 to 144 equals a 22% decline in value from one point to the other.

Before trying to apply Case-Shiller Index trends to specific cities, neighborhoods and homes — which can be deeply misleading — please read the explanation of how the Index works: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF

San Francisco home values have significantly out-performed the overall Case-Shiller Index metro area over the past 12 to 18 months.

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January Case-Shiller Index Released

The just released Case-Shiller Index reading for January for the high-tier price segment of the 5-county San Francisco Metro Statistical Area declined slightly from December. This reflects seasonal market issues, not a decline in values, and it occurs every year – indeed, the decline was smaller than what is typical.

From January 2012 to January 2013, the Index indicates an 11% increase in house values for this segment of the metro area market. However, the real estate market of the city of San Francisco itself has outperformed the general market of the 5-county metro area. And due to its methodology, the Index is 4 to 7 months behind what is currently occurring in the market. In a quickly appreciating market, that can be a long period of time.

http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_High-Tier_2011.jpg

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http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_HT_1996-2011.jpg

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Our full report on the Case-Shiller Index is here: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF

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Case-Shiller’s December Report: 10th consecutive increase

The December report of the Case-Shiller Index for the 5-County SF Metro Area was released today, showing its 10th consecutive increase. In the high-tier-price index, which applies to the city better than their other indexes, but still understates the increases we’ve seen here, C-S shows a 9% increase in prices in the past 12 months, December 2011 to December 2012. Again, the real estate market of the city of San Francisco itself has outperformed the general market of the 5-county metro area.

http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_High-Tier_2011.jpg

Case-Shiller_High-Tier_2011

http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_HT_1996-2011.jpg

Case-Shiller_HT_1996-2011

Our full report on the Case-Shiller Index is here: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF

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November Case-Shiller Index Released

The Case-Shiller Index just released their November report, which is reflected in the two charts below. Remember that this is for the top third of sales price-wise in the 5-county San Francisco “metro statistical area.” The city of San Francisco has recovered more quickly and dramatically than the 5-county area as a whole.

Each month, Case-Shiller recalculates the price ranges of the low, middle and top tiers (thirds) of sales by the number of units sold. One indication of what has happened over the past year is that in December of 2011, the top third (“High-Tier”) of sales started at a sales price of $573,000; in November 2012, the top third of sales started at $685,000.

http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_High-Tier_2011.jpg

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http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-Shiller_from_1990.jpg

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Our in-depth analysis of the Case-Shiller Index can be found online here: http://www.paragon-re.com/Case_Shiller_Index_Deciphered_for_SF

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