Between 2012 and 2015, the median price of a single family home in San Francisco increase by around 70% as we came out of the Great Financial Crisis. Condominium prices increased by around 55% during the same period.
It’s not surprising, then, that the market took a breather and leveled off a bit during 2016. However, along with the return of warmer, dryer weather, buyers seem to be returning to the market in droves, and there is simply not enough inventory to meet demand. While it’s still a little too early to tell, our data suggests that things are heating up again.
Acceptances are Up
One of the classic statistics of supply and demand is percentage-of-listings-accepting-offers: The higher the percentage, the hotter the market.
In the chart above, we looked at single family home and condo sales in various price segments in April of the last three years. Most segments saw considerable cooling from April 2015 to April 2016. However, almost all the segments bounced back in April 2017, and, indeed, the lower price segments (shown at the right of the chart) performed significantly better than 2 years ago. It’s also worth remembering that the spring of 2015 was itself considered a very “hot” market; yet acceptance levels for entry level condos and, especially, homes up to $2 million are now well above those we saw in 2015.
Supply is Down
Other standard measures of market heat, such as average-days-on-market, and months-supply-of-inventory, corroborate our perception the market may be taking off again. The chart below shows just how constrained our inventory levels are currently. High demand plus low supply spells “price increases.”
Reports “from the trenches” also support the statistics. Multiple offers, pre-emptive offers, non-contingent offers, and a seven to ten-day “show ‘em and sell ‘em” period from first open house to offer deadline date, are all once again the norm. Forget about meaningful listing prices: attract sufficient buyers and the selling price will take care of itself. Certain neighborhoods are on fire (again) and others are heating up as the others burn: You can now figure you’ll pay $1,000 – $1100 per square foot for a nicely renovated 1600 sf home on a postage stamp sized lot in Bernal Heights — unimaginable just a few years ago. Meanwhile, the more affordable southern and western neighborhoods like Central Sunset, Sunnyside, and the Excelsior are seeing big gains as buyers are priced out of their first and second choice neighborhoods.
Here’s a chart showing price appreciation through 2016 for the Sunset District and Golden Gate Heights.
It’s still a little too early for the data to reflect sales occurring since the start of Q2 2017, usually the most active selling season of the year, but my guess is that prices will be up, and up strongly in the more affordable market segments.
The Big Picture
With the stock market at new highs, interest rates still hovering near their all-time lows and Bay Area employment looking very solid, it’s hard to see a crash and burn scenario on the near horizon (though the state of our national politics injects a note of uncertainty into everything). Even rental rates, which have been falling, are on the rise again.
At the same time, the lack of affordable housing is a huge issue and certainly should sound a note of caution. At some point, the party is going to stop: it always does. For long-term buyers, however, I remain confident that San Francisco will remain one of the best places in the world to own a home or an investment.
If you’re thinking of selling, now’s the time to move quickly before the summer lull hits. That’s especially true if your home will be priced above $2 million.
If you’re a buyer, start by understanding — and accepting — that it’s a tough market out there. This is not the kind of market where anything is going to feel like “a deal.”
- Have your financing lined up and rock-solid with a lender that can and will move quickly.
- Be prepared to give your highest and best bid first — you may not get a second chance.
- Visit new listings and be prepared to move fast.
- Consider listings that have been languishing for a while. Sometimes they are overlooked because they don’t “check all the boxes.” These can be rare opportunities to make an offer with less competition.
- Be clear about your “must haves” and what you might be able to do without.
As always, your questions, comments, and referrals are greatly appreciated!