San Francisco’s “Value” Neighborhoods Take Off as Inventory Remains Low

April Newsletter

I’ve been opining for some time that many of San Francisco’s previously overlooked neighborhoods are seeing rapid home-price appreciation as buyers are being priced out of their first and second choices. I now have data to confirm it.

When the SF market recovery began in 2012, the more affluent neighborhoods led the way in rapid home-price appreciation. This is what you’d expect to happen as the “haves” tend to see their prospects improve before the “have nots.” But starting in 2014, the more affordable neighborhoods have taken the lead. Of course, there are few places outside San Francisco where houses of $1.2 million would constitute the “affordable” segment of the market, but as median house prices in the greater Noe, Eureka & Cole Valleys area

accelerated well over $2 million (and over $4 million in the Pacific Heights-Marina district), buyers have started to fan out, desperately looking for less expensive options. The increased competition in these more affordable neighborhoods has resulted in some dramatic price appreciation. Take a look at the chart below, covering some of these neighborhoods.


This is not to suggest that the higher-end markets in the city are languishing. That is not the case – it’s crazy there too – but generally speaking, recent appreciation rates have not been as high as in the less costly districts. (You can find an interactive map on home prices around the city at RealDataSF, here.

As always, one should be cautious interpreting general statistics: For example, Bernal Heights, which has been white hot, saw year-over-year median price appreciation of “just” 10%, but its average dollar-per-square-foot value jumped 19%. Likewise, when considering Bayview/Excelsior’s dramatic rebound, consider that these neighborhoods were hit hardest during the housing bust and are among the last neighborhoods to recover.


City-wide, first quarter sales remained white-hot by any measure. 80% of homes sold with no price cut within an average of 27 days of being placed on the market. Those homes sold for an average of 10% above the list price. While it may seem as though anything will sell these days, those homes that are perceived as over-priced will languish: Though only 7% of homes underwent a price cut, those that did took an average of 94 days to sell and ended up going for 10% less than their original list price.



Probably the most frequent question I’m asked – besides “How long can these crazy prices continue?” – is “Why is inventory so low?”. Paragon’s market analyst, Patrick Carlisle, recently reported on this here, but the answer is pretty simple: there’s just a lot of demand soaking up available supply. The result is the perception that there’s less supply, but in fact new listings coming on via the MLS are at around the historical norms. Meanwhile, San Francisco’s economy is booming, and, as if that weren’t sufficient on its own, SF has weirdly become the Silicon Valley’s own “bedroom community” as well.
Emplyed Population Percent Increase

The result is a huge increase in an affluent, employed, population that the supply of new housing has not kept up with. Since 2010, it’s estimated that San Francisco’s population has grown by 45,000 people. Yet we’ve added only around 8,300 units during the same period.


What’s more, our view at Paragon is that all the new construction we’re seeing go up around the city is not going to make a noticeable dent in the supply imbalance any time soon. That’s a lengthy discussion in itself, so we will save that for a later post. For the moment, let me wrap up with the chart below, which illustrates the effect of increased demand on available inventory even when available inventory isn’t falling.


With available homes for purchase likely to continue bumping along the bottom for the foreseeable future, those “affordable” neighborhoods I mentioned above are going to do very well indeed.

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

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