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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April Newsletter: A Hot Market Getting Hotter

San Francisco: A Hot Market Getting Hotter

1st Quarter 2013 Market Report

In 2012, the market turned with a vengeance and grew very hot very quickly. Now in 2013 it has grown even hotter. Recent deal-making stories almost make the seemingly crazy, multiple-offer tales of last year appear sedate. The supply of listings is drastically low against buyer demand, and the pace of price appreciation looks to be accelerating. Some city neighborhoods appear to be surpassing the previous peak values reached in 2007-2008. As seen below, the first quarter’s numbers reveal big increases in home values year over year. And the month of March alone saw a particularly big jump of almost 9% above February’s median price.

March sales prices reflect the heat of the market 4-8 weeks earlier, when the offers were actually negotiated. Much of the first quarter’s sales data reflects offers negotiated in late 2012. In a rapidly changing market, we’re always looking in the rearview mirror.

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N2How Does Supply & Demand Affect Prices?
The past 18 months give a text book example of how the supply and demand dynamic affects home values. Months supply of inventory (MSI) measures the strength of buyer demand against the available inventory of homes to purchase: the lower the MSI, the hotter the market. The hotter the market, the greater the upward pressure on prices.

This link shows the details of the recent increases in median sales price:
SF Median Home Price by Month

N3Sales Prices Over & Under List Price
As the market has strengthened, the percentage of SF homes selling for over — and sometimes far over — list price, has soared to almost unbelievable levels. In the last 2 months, 30% of SF house sales have sold for 15% or more above asking price.

This link shows the huge decline in inventory since the market turnaround began. Typically, we see a surge in early spring. Not this year, at least not so far:
Inventory of Listings for Sale

N4Percentage of Listings Accepting Offers
This is another excellent indicator of demand vs. supply, and it is now at the highest levels in memory for virtually all property types.

This link goes to our chart on average days on market. Generally speaking, the hotter the market, the faster listings go into contract and that is what we are indeed seeing now:
Average Days on Market

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Surprise! Condos are Holding Up Better Than Homes

For the quarter century (gulp!) that I’ve been involved in real estate, the conventional wisdom has always been that condo values generally do worse in down markets than homes.  Why?  To be honest, I’m not sure, but I think it’s because it’s easier to overbuild the condo market than the single family home market.  It goes back to that famous quote:  “Buy land – they aren’t making any more of it.”  Just take a look at Miami, Chicago – or downtown San Francisco.  One new high-rise can hold hundreds of condos in the sky.  Try building just one new home in SF, let alone hundreds – it aint happening.Of course, more supply  + less demand in a down market means prices fall.  Has that been the case in San Francisco?

I looked at percentage change from all time highs for condos and single family homes (sfd’s) since January 2003 and here are the results for the city as a whole.

Condos vs. SFDs All Districts Chart

Until June 2008, condo and home prices were in lock-step in terms of price appreciation and decline.   Thereafter, homes fell first and further. (Do I hear a lithp?) In March 2009, the delta between condos and home prices was a whopping 13%.  Since then, however, home prices have recovered smartly:  as of June, homes are about 4.5% further off their all-time highs than condos.

What does this all mean?  First of all, I wouldn’t take too much consolation just yet in the upward spike in both condo and home prices since the beginning of the year.  If you take a look at the chart, this happens every Jan/Feb when people start buying out of the winter doldrums.  I wouldn’t predict a bottom until we see what happens this winter.

Secondly, given the woeful condition of the economy and the credit markets, together with the fact that San Francisco is not a badly overbuilt housing market, it sort of makes sense that condos are holding their value relatively well as people are finding themselves priced out of more expensive single family homes.

Still, the current delta of only $100,000 between median condo and median home prices seems rather small.  If people are just begging to know what the historical average is, let me know and I’ll find out.

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