Let’s Talk about Taxes

First, a big thank you to everyone who responded to my RealDataSF Poll about how to make this newsletter better.  This month’s topic is a direct result of your input, as information about tax-related topics was among the top 3 subjects my readers wanted me to cover in addition to market news (the other two were investing in and renovating property).

Some other quick results:

  • 92% of responders found the length of my newsletters “about right.”
  • 72% thought the amount of data was “perfect”; 24% wanted more; 4% wanted less.
  • 58% were fine with occasional newsletters on more personal subjects.
  • 68% forward my newsletter “occasionally;” 4% share it “all the time; and 28%, “never.”
  • Several people wrote that it’s the “best real estate newsletter out there.”  (Thank you!).    One suggested that “Haikus in Latin would be a great addition.” (Working on it!)

For those who didn’t receive the poll or who would still like to respond, you can access it by clicking here.

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Now on to taxes. Let’s get the disclaimer out of the way:  I’m not an accountant or a tax attorney and I’m not giving tax or investment advice.  These issues are complicated and the rules are ever-changing so go see a real expert.  My purpose here is simply to identify some of the main tax subjects you should be aware of if you own residential property.   Whew!

Excluding Tax on Capital Gain from the Sale of Your Home

If you have a capital gain from the sale of your home, you may be able to exclude up to $500,000 of that gain from your income if you are married and filing jointly (or $250,000 if an individual), provided that you have owned and lived in the home as your principal residence for an aggregate of at least two out of the five years before the sale.

What’s “capital gain?”  It’s often misstated as simply the difference between what you bought your house for and what you sold it for.  In reality, “capital gain” is more complicated than that but will usually result in a smaller potentially taxable net gain, which is always good.

“Capital gain” is the home’s selling price minus deductible selling costs (which include brokers’ and escrow fees) and minus your “tax basis” in the property.  Your “tax basis” is what you paid for the property plus some of the costs of acquiring it, plus major improvement costs you’ve incurred during your ownership, so it’s worth keeping track of them.  The best explanation I’ve found for this tax benefit is at Nolo Press’s excellent website, here. You can also take a look at the IRS’s info pamphlet here.

There’s no limit on the number of times you can use this exclusion, provided that you meet the 2 year ownership and use minimums each time you claim the exclusion. Some serial flippers buy a home, live in it for a couple of years while they fix it up, sell it, buy a new one and start again.

Escaping The “Golden Handcuffs”  of a Low Property Tax Assessment:  Prop 60 and 90

Empty-nesters and other long-time home-owners often think about selling their home and buying a smaller or more convenient one so that they can simplify their lives, live closer to family, or untap the home’s increase in value for other purposes (see “Excluding Tax on Capital Gain” above). What can stop them is that they may end up paying far more in annual property tax assessments even if they’re buying a more modest home.

How come?  Under California’s Proposition 13, passed in 1978, property in California is reassessed when it’s sold, transferred, or substantial improvements made to it.  Otherwise, the property is taxed at around 1% of the purchase price (with minor additions for locally approved bonds and levies) and then those taxes only increase by an inflation factor which cannot exceed 2% per year. 

Consider that according to the widely followed Case Shiller Index, higher priced homes in the San Francisco Bay Area have have increased by a whopping 137% since January  2000 (ie they’ve more than doubled).  Even assuming the maximum annual increase of 2% compounding per year, a homeowner’s property tax assessment would only have increased by about 40% over the same 17 year period.

Now, let’s say the home you bought for $500,000 in 2000 has increased by 138% and is worth $1.2 million today. Your annual property taxes, which started at around $5,000 are now about $7,000.  You want to downsize and you have your eye on a nice little condo that you could buy for $800,000, allowing you to put some money away for your retirement.  The problem?  You’ll be paying $8,000 in property taxes on your new home – $1,000 more than on your old one – even though it’s worth $400,000 less.

Recognizing this problem, in 1986, California passed Proposition 60, which gave homeowners 55 or older a one-time right to transfer the property tax assessment on their existing primary residence to a new one purchased for no more than their previous one, provided both homes were located in the same county. Two years later, Proposition 90 was passed.  It allows qualifying homeowners to transfer their  property tax assessment to new homes located within eleven counties that have agreed to reciprocal transfer rights.  In the Bay Area, only San Mateo, Alameda, and Santa Clara participate, so San Francisco homeowners are currently out of luck.

That may change, however.  According to a recent article, the California legislature is considering a bill that would permit assessments to be transferred between any county in the start, starting in 2019.  This could be a huge boon for people looking to move to cheaper areas or simply to be closer to their families.

I’ll cover some additional tax subjects like 1031 exchanges in future newsletters.  Thanks for sticking with me on this unusually lengthy one.  And let’s see if we can increase my readership: please share my newsletters with others and “like” them on Facebook, Twitter and LinkedIN.

As always, your comments, questions, and referrals are very much appreciated!

Misha

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The Cost of a Hot Economy in California: A Severe Housing Crisis

Today’s NY Times talks about the California housing affordability crisis and how the state is considering legislation to make it harder for opponents of developments to create roadblocks to projects that otherwise fit within a locality’s zoning laws. There’s finally a movement of “YMBY’s” That are saying “yes” to greater density – which is really the main issue – because they understand that sprawl is the enemy of the environment in so many ways. In San Francisco, that’s resulting in projects that, for example, don’t require parking for each unit – a recognition that younger buyers are abandoning cars in favor of car-sharing and public transport.

Meanwhile, up in Windsor – an hour and a half away from SF, my 12 unit, architecturally innovative live/work project, complete with solar panels, sits undeveloped on 1.2 acres of land and is required to provide 37 onsite parking spots….

SACRAMENTO — A full-fledged housing crisis has gripped California, marked by a severe lack of affordable homes and apartments for middle-class families. The median cost of a home here is now a staggering $500,000, twice the national cost. Homelessness is surging across the state.

In Los Angeles, booming with construction and signs of prosperity, some people have given up on finding a place and have moved into vans with makeshift kitchens, hidden away in quiet neighborhoods. In Silicon Valley — an international symbol of wealth and technology — lines of parked recreational vehicles are a daily testimony to the challenges of finding an affordable place to call home.

Heather Lile, a nurse who makes $180,000 a year, commutes two hours from her home in Manteca to the San Francisco hospital where she works, 80 miles away. “I make really good money and it’s frustrating to me that I can’t afford to live close to my job,” said Ms. Lile.

The extreme rise in housing costs has emerged as a threat to the state’s future economy and its quality of life. It has pushed the debate over housing to the center of state and local politics, fueling a resurgent rent control movement and the growth of neighborhood “Yes in My Back Yard” organizations, battling long-established neighborhood groups and local elected officials as they demand an end to strict zoning and planning regulations.

Now here in Sacramento, lawmakers are considering extraordinary legislation to, in effect, crack down on communities that have, in their view, systematically delayed or derailed housing construction proposals, often at the behest of local neighborhood groups.

The bill was passed by the Senate last month and is now part of a broad package of housing proposals under negotiation that Gov. Jerry Brown and Democratic legislative leaders announced Monday was likely to be voted on in some form later this summer.

“The explosive costs of housing have spread like wildfire around the state,” said Scott Wiener, a Democratic senator from San Francisco who sponsored the bill. “This is no longer a coastal, elite housing problem. This is a problem in big swaths of the state. It is damaging the economy. It is damaging the environment, as people get pushed into longer commutes.”

For California, this crisis is a price of this state’s economic boom. Tax revenue is up and unemployment is down. But the churning economy has run up against 30 years of resistance to the kind of development experts say is urgently needed. California has always been a desirable place to live and over the decades has gone through periodic spasms of high housing costs, but officials say the combination of a booming economy and the lack of construction of homes and apartments have combined to make this the worst housing crisis here in memory.

Housing prices in Los Angeles, San Francisco, San Jose and San Diego have jumped as much as 75 percent over the past five years.

The bill sponsored by Mr. Wiener, one of 130 housing measures that have been introduced this year, would restrict one of the biggest development tools that communities wield: the ability to use zoning, environmental and procedural laws to thwart projects they deem out of character with their neighborhood.

It is now the subject of negotiations between Mr. Brown and legislative leaders as part of a broader housing package intended to encourage the construction of housing for middle- and lower-income families that is also likely to include the more traditional remedy of direct spending to build more housing units.

State Senator Scott Wiener, who sponsored a bill restricting communities’ ability to quash housing projects. “We’re at a breaking point in California,” he said. CreditJim Wilson/The New York Times

This is not the first time this state has sought to prod recalcitrant local governments to build housing. Mr. Brown tried to push through a measure to force communities to build more affordable housing around a year ago. That effort, like most in recent years, faltered in the face of opposition from local officials, homeowners and environmentalists, who often see these kinds of measures as enriching developers while threatening the character of some of the most visually striking parts of this state, along the coast and in the mountains.

“It’s giving developers a great gift and not giving residents and voters a chance to cast their opinions about what happens in their own neighborhood,” Helene Schneider, the mayor of Santa Barbara, said of Mr. Wiener’s new bill.

But the worsening housing crisis here has created a political environment where prospects for a state housing intervention appear more likely than ever.

“There is a consensus that there is a crisis and we have to address it,” said David Chiu, a San Francisco Democrat who leads the Assembly Housing and Community Development Committee. Mr. Wiener compared the political atmosphere now to how Californians embraced mandatory water-rationing in response to the five-year drought here.

“We’re at a breaking point in California,” Mr. Wiener said. “The drought created opportunities to push forward water policy that would have been impossible before. Given the breadth and depth of the housing crisis in many parts of California, it creates opportunities in the Legislature that didn’t exist before.”

The debate is forcing California to consider the forces that have long shaped this state. Many people were drawn here by its natural beauty and the prospect of low-density, open-sky living. They have done what they could to protect that life. That has now run up against a growing generational tide of anger and resentment, from younger people struggling to find an affordable place to live as well as from younger elected officials, such as Mayor Eric M. Garcetti of Los Angeles, who argue that communities have been failing in what they argue is a shared obligation.

For the past several decades, California has had a process that sets a number of housing units, including low-income units, that each city should build over the next several years based on projected growth. Mr. Wiener’s bill targets cities that have lagged on building by allowing developers who propose projects in those places to bypass the various local design and environmental reviews that slow down construction because they can be appealed and litigated for years.

The bill applies only to projects that are already within a city’s plans: If the project were higher or denser than current zoning laws allow, it would still have to go through the City Council. But by taking much of the review power away from local governments, the bill aims to ramp up housing production by making it harder to kill, delay or shrink projects in places that have built the fewest.

It is hard to say exactly which projects might benefit if the various bills were passed, since it’s impossible to know which projects local governments might reject in the future. But there are various examples where it might have pushed a development along.

In Los Gatos, about 60 miles south of San Francisco, for instance, a long-running dispute over a proposed development for 320 homes that the city rejected led to a lawsuit by the developer, which resulted in a judge directing the city to reconsider the plans. Also, cities regularly make developments smaller than their zoning allows, something that gradually chips away at future housing production.

California is the toughest market for first-time home buyers and the cost of housing is beyond reach for almost all of this state’s low-income population. Despite having some of the highest wages in the nation, the state also has the highest adjusted poverty rate.

Houses under construction in Manteca, Calif. Many who cannot afford homes San Francisco or Oakland are moving there — nearly two hours away. CreditJim Wilson/The New York Times

And Proposition 13, the sweeping voter initiative passed in 1978 that capped property taxes, has made things worse: It had the effect of shrinking the housing stock by encouraging homeowners to hold on to properties to take advantage of the low taxes.

“California is a beautiful place with great weather and a terrific economy,” said Issi Romem, the chief economist with BuildZoom, a San Francisco company that helps homeowners find contractors. “To accommodate all those people you need to build a lot, and the state’s big metro areas haven’t since the early ’70s. To catch up, cities would need to build housing in a way that they haven’t in two generations.”

Coastal cities — which tend to have the worst housing problems — have the most scarce land. Still, economists say, the high cost of all housing is first and foremost the result of a failure to build. The state has added about 311,000 housing units over the past decade, far short of what economists say is needed.

“Cities have proven time and time again that they will not follow their own zoning rules,” said Brian Hanlon, policy director of the San Francisco Yimby Party, a housing advocacy group. “It’s time for the state to strengthen their own laws so that advocates can hold cities accountable.”

Still, few elected officials are eager to risk community anger by forcing through construction that would, say, put a 10-story apartment building at the edge of a neighborhood of single-family homes. That has turned California into a state of isolated and arguably self-interested islands.

The situation has been aggravated by places such as Brisbane, just south of San Francisco, which has encouraged extensive office development while failing to build housing.

“We have cities around California that are happy to welcome thousands of workers in gleaming new tech and innovation campuses, and are turning a blind eye to their housing need,” said Mr. Chiu.

In the Bay Area, the explosive growth of the tech industry has led to escalating rents, opening a tough debate over gentrification and brutal commutes for workers. “Cities that deny housing are contributing to skyrocketing rents, unfair evictions and homelessness,” said Lori Droste, a member of the Berkeley City Council.

The measure has raised considerable opposition as well, including from lawmakers who argued that letting state take power away from local governments strips communities of the ability to control the fundamental character of their own neighborhoods.

“People here feel like this is a special place, like people in any town or city do,” said Chris Coursey, the mayor of Santa Rosa. “And they want decisions about the future of the community to be made by people in the community who they can actually talk to about this.

Richard Bloom, a Democratic state assemblyman and a former mayor of Santa Monica, said even communities like his were no longer reflexively trying to derail housing projects.

“More and more people are becoming well aware that we have a housing affordability crisis on our hands,” he said. “The issue is just reaching critical mass with the Legislature and the public.”

Source

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It’s Official: San Francisco Housing Market Reignites

In last month’s newsletter, I said that initial signs pointed to a newly robust Spring housing market after evidence that prices had flattened somewhat — especially for condominiums — in 2016. The data gathered through May confirms that conclusion.

The median house sales price jumped to $1,500,000, its highest point ever, about $100,000 (7%) above its previous monthly peak. The SF median condo sales price also hit a new peak at $1,200,000, $20,000 (1.7%) above its previous high.

The normal seasonal pattern is for prices to spike in Spring, and again in September, while settling a bit during the summer and winter months as activity wains.  But looking at year over year statistics (below) confirms the spike we see in the chart above.

Low Supply

The fundamental driver of price increases is, of course, demand outstripping supply. As the following chart shows, supply remains at record low levels — particularly for single family homes.

It’s worth noting that our charts do not reflect condominiums that are being marketed directly by developers of new projects. As a result, the number of condos available for purchase is actually somewhat higher than the chart shows. The new condos tend to be concentrated in projects in the South of Market/Downtown areas, as well as along the Van Ness corridor, which has seen a number of new projects come to market recently.

The Hottest Neighborhoods?

The hottest neighborhoods, based on buyers engaged in competitive bidding wars, are actually some of SF’s coolest in terms of weather. Parkside, the Outer Sunset, and Lake Shore and Lakeside (near Lake Merced and San Francisco State University Campus) are well within the foggy reaches of the Pacific Ocean and on SF’s southern border. Why these areas? Simple — they’re among SF’s last most affordable neighborhoods for single family homes. People are willing to trade weather and a more central location to buy a piece of equity. We are seeing a lot of renovations in these neighborhoods: think upscale kitchens and baths, open layouts, basements converted to living space — in a word, the same kinds of amenities and updates you’d expect to see in the more coveted neighborhoods like Noe Valley but at a less grand scale.

Meanwhile, luxury neighborhoods like Pacific Heights and Noe Valley seem to be reaching something of a peak in their pricing, as overbids appear to be moderating — for now.  Sales volume appears to be reflecting the same trend, except for the almost always hot Noe/Eureka/Cole Valleys — among the most popular neighborhoods with techies wanting easy access to the South Bay.  Below is a multi-year view.

Luxury Condos  South of Market “Sinking”

It’s not just Millennium Tower that is sinking. The biggest change in the luxury home market has been the dramatic drop, almost 50% year over year, in luxury condo sales reported to MLS in the greater South Beach/ SoMa/ Yerba Buena district, even as listing inventory there has hit new highs. This is the area where large, very expensive, high-rise projects continue to come on market, and, to some degree, they may be cannibalizing MLS sales in the resale market. Foreign buyers have played a significant role here in recent years and it is possible (we do not have hard data) that this demand has declined due to political issues here and in China as well.

Summer Doldrums

With July 4 around the corner, we are entering the typical summer doldrums months.  There will continue to be activity, especially at the more affordable end of the market, but those those that can afford to may try to head out of town for better weather.  As an Aussie who knows how to “throw another shrimp on the barbie,”  let me wish you a great July 4 week-end.  Happy BBQing!

As always, your comments, referrals, and suggestions are much appreciated!

Misha

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Meet The Expert – ‘Everything You Wanted to Know About Buying a Home in San Francisco’

JUNE 08, 2017

(*But were afraid to ask!)

ABOUT THE TOPIC

Join Misha Weidman, J.D., Broker Associate and Attorney at Paragon Real Estate Group, for a lively and informative discussion about the essentials of buying a home in San Francisco. Here are just some of the questions he will address:

  • How to find a home
  • How to make an offer
  • How to finance your purchase
  • What are San Francisco’s more affordable neighborhoods
  • What is “dry rot” and why should you care
  • What is a condominium
  • “Notaire?” Not here!

ABOUT THE SPEAKER

Misha Weidman‘s experience in San Francisco real estate is broad and deep. He has owned, renovated, and invested in residential property since 1987.  A licensed attorney, Misha practiced commercial real estate law for a leading San Francisco firm for many years before focusing on residential brokerage. Now a broker-associate at Paragon Real Estate Group, one of San Francisco’s pre-eminent locally owned real estate brokerage companies, he also blogs about real estate trends and topics on his website RealDataSF.com and on LostinSF.com, a bilingual website that helps French-speaking expats “find their way” in San Francisco. A parent of high-schoolers who have attended both of San Francisco’s French-Bilingual schools, Misha has helped many francophone families and individuals find homes in San Francisco.

ABOUT MEET THE EXPERT

Who? Expert & up to 12 participants
How? Our expert will tell you all about the theme of the day and will save some time for questions
When? Twice a month on a Thursday
Where? French-American Chamber of Commerce San Francisco’s office, 26 O’Farrell Street, #500, San Francisco, CA 94108
Why? Learn, network and enjoy a nice breakfast!
Price? Free for members – Non-member: $35

More Information

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Spring Has Sprung Once Again in San Francisco’s Housing Market.

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.”

Trench Warfare

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.

Strategies

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!

Misha

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How Does San Francisco Compare to Other Bay Area Markets?

While we wait for the rain to stop and for the market to give some sign of its direction this spring, let’s take a look at what’s going on around us.

We’ll start with a look at single family homes.  I was surprised to see San Mateo running neck-and-neck with SF, and ahead of Santa Clara, Marin, and LaMorinda/Diablo Valley (Diablo).  I suspect that’s both because ritzy communities like Atherton and Hillsborough bring up the median values and because there are relatively few low-priced neighborhoods.  (Compare, for example, Santa Clara County, which along with high-priced Palo Alto, includes the neglected community of East Palo Alto as well as a lot of agricultural land in its southern and eastern parts.)

Big Up, Big Down

The table below looks at how values changed, both up and down, on either side of the Great Financial Crisis (GFC) that started in 2007.  While all counties fell from their peaks, the ones that fell hardest were those that were generally more rural, less affluent, with greater overbuilding, and where buyers were more susceptible to predatory loan practices.  While they roared back from the bleak bottoms they hit in 2009-2011, they still have not reached their pre-bust levels.

Meanwhile, Oakland and Alameda County are interesting points of comparison to San Francisco, especially as many who feel priced out of SF think of moving there.  Both fell significantly further during the crash (-60% and -44%) than San Francisco (-17% for condos, -23% for homes) and have enjoyed spectacular increases since the recovery began.  However, Oakland and Alameda County lag far behind San Francisco if you look at total appreciation from their pre-crash levels to now.  Focusing on Oakland alone, it’s up 12% by that measure, while San Francisco homes and condos have both appreciated over 40%.

In my mind, this is proof of the first three rules of real estate investing:  “location, location, location.”  Other areas will be buoyed by the tide as prime locations are bid up and are no longer affordable, but when the tide ebbs, they will also drop further and take longer to recover.

Overbids

Here’s an interesting look at the relative heat of different counties based on average overbids.  (We break out Oakland separately, as well as SF homes and condos.)

Demographics

I’ll leave you with some fascinating charts on demographics for our Bay Area Counties.  For the truly geeky, you can find even more charts and analysis in Paragon’s full Bay Area Market Survey.

As always, your feedback, questions, and referrals are much appreciated!

Misha

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The 2016 San Francisco Real Estate Wrap-Up: Houses on Simmer; Condos Cool

The data is now in for 2016 and we have sliced and diced it to perfection.  The results?  Single family homes are on simmer, with median prices up a “mere” 6% over last year.  City-wide,  houses hit $1,350,000 in the last quarter of 2017, an all-time high.  Meanwhile condominiums are going sideways.  At $1,078,000, they were down about $25,000 from a year previous. In fact, their median price is effectively the same as it was at the start of 2015.

screen-shot-2017-02-01-at-6-16-02-pm

Here’s another look at the appreciation rates for houses and condos in recent years.  Clearly, double-digit gains are not sustainable forever. 

screen-shot-2017-02-01-at-6-17-44-pm

screen-shot-2017-02-01-at-6-18-22-pm

Not Hot, Not Cold

The overall cooling of the market — and the fact that condos are cooling more than houses –shows up in a wide range of statistics.  Here are a couple of my favorites.  The first shows how many homes are selling over their final list price.  The second shows how much they’re selling for over the list price.

screen-shot-2017-02-01-at-2-42-27-pm

screen-shot-2017-02-01-at-2-42-47-pm

So let’s be clear: even with condos cooling off, last year 58% of them received overbids.  The amount of the overbid, however, has declined markedly so that now on a $1 million condo, an overbid might be “just”  $15,000.  Meanwhile, 76% of houses are receiving overbids and they’re still around 10% over list price.

Will the cooling trend continue?  Right after election day, I discussed what a Trump administration might mean for San Francisco’s real estate market.  Now that he’s been in office for a week, I think it’s more prudent to say “who knows?”   While my views haven’t changed about why Trump and the Republicans should generally be “good” for a real estate market like ours where only the well-off and wealthy get a seat at the table, it seems to me that the dangers that uncertainty injects into any market just got a lot “bigly-er.”  Witness Monday’s slump in the stocks.

Getting Granular

Not all neighborhoods or price segments are performing equally.  Broadly speaking, more expensive properties are seeing weaker demand than more affordable properties.  You can see this most clearly in the following charts that track the percentage of listings that expire or are cancelled without a sale.  The first chart is for the overall market; the second focuses on properties that listed for $2 million or more:  quite a difference!

screen-shot-2017-02-01-at-6-19-59-pm

screen-shot-2017-02-01-at-6-20-28-pm

Correspondingly, the more affordable neighborhoods saw decent price growth for single family homes, while home prices in the more luxurious neighborhoods plateaued.  Ie.  “Go West”  and Go “South” for value.   (In the first chart, imagine same-colored bars stacked beside each other to see prices changing over time.  The second chart does a clearer job for high-priced neighborhoods.)

screen-shot-2017-02-01-at-2-44-09-pmscreen-shot-2017-02-01-at-2-44-17-pm

Consider the statistics in the second chart with caution:  there tend to be fewer sales in these ritzy neighborhoods and there can be wide discrepancies in sales prices that can throw the numbers off.  (No, we don’t believe that Inner Richmond prices really jumped 20%.)  Statistically speaking, the most reliable data is for Noe & Eureka Valleys, which have a high number of sales: The median sales price there has basically plateaued from 2015 to 2016. 

Condominium prices have flattened more uniformly across the city, but MLS District 9, which includes all the new construction taking place in SoMa, Mission Beach, etc, has dropped the most:  around 5% from last year.

screen-shot-2017-02-01-at-2-44-50-pm

For my readers who just can’t get enough of this stuff, we have lots more charts here and here.  For everyone else, I’ll be breaking it down into bite-sized chunks over the coming months.

As always, your comments, questions, and referrals are much appreciated!

Misha

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Happy Holidays

Here are some of my favorite photos from 2016: from a trip to Death Valley in February to see the super-bloom, and the rest from our family trip to Peru where we did the Inca Trail among other things. Somehow Luna the Wonderdog got in there too, carrying flowers home on 24th Street.

We’ll take a detailed look at 2016 when all the data is in early next year. Let me take this opportunity to wish you all a joyful 2017. And thank you all for your continued readership and positive feedback for this newsletter. Keep it coming!

~Misha

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Turkey and Trump: Lots to Digest

trumpturkey
Happy Thanksgiving everyone.  It’s been an emotional roller-coaster November with a surprise election result (on my birthday, no less) that sent many San Francisco residents into a state akin to mourning. (Full disclosure:  I count myself among them.)  Several of my own buyer clients have put their plans on hold while they regroup emotionally and assess how Donald Trump’s election affects their own plans to invest a sizable chunk of money in real estate and/or put down roots.  Meanwhile, sellers ponder whether to speed up bringing their homes to market as the post-election spike in interest rates may presage more of the same, which in turn may reduce the amount that people can afford to pay.

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San Francisco’s Hottest Neighborhoods: Not Where You Might Think

Noe Valley? Bernal Heights?  Those are so yesterday.  Maybe you’re thinking Bayview/Hunter’s Point as people search out more affordable housing at the city’s edges.

Well, you’re right about the edge but wrong about the direction.  Based on our recent analyses, San Francisco’s “hottest” neighborhoods are also some of its foggiest: go west to the Sunset and its more southerly counterpart, Parkside.

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Now admittedly, together these comprise a lot of smaller neighborhoods.  Many would object to, say, the Inner Sunset with its vibrant retail scene centered on 9th Ave and Irving, being lumped in with the quieter environs of the Outer Sunset.  Fair enough:  our analysis is really of MLS Districts, rather than individual neighborhoods, but it’s no less telling for that. Continue reading

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