Real Data SF November Newsletter

Welcome to the very first edition of Real Data SF, a monthly newsletter about the San Francisco real estate market.

If real data, with lots of charts and analysis is your cup of tea, then please read on. Because that’s what I’ll be doing here. In addition, there’ll be the occasional recipe, restaurant review, and heads-up on fun stuff to do in SF. Comments, feedback, suggestions, always welcome of course. Now let’s crunch some numbers!

San Francisco’s Housing Market Kicks in the After-Burners

Many people who don’t necessarily follow real estate that closely aren’t aware that SF’s residential market has been on fire since the start of 2012. Take a look at this chart:

Paragon Real Estate Group
Starting in January, demand – followed by prices – took off. After a steep climb through April, prices took a breather through the summer – only to take off again in autumn.

What’s more, because this chart includes both distressed and non-distressed sales across all neighborhoods in SF – from Seacliff mansions to Bayview bungalows– it doesn’t reflect the extent to which the middle and upper end of the housing market has recovered. If you look at non-distressed sales above $1.5 million – and that’s hardly a luxury home in SF any more – prices on a per square foot basis are within striking distance of their 2008 all-time highs, fueled by an enormous rally in the third quarter.

Will this continue? Though activity typically slows down during the winter and holiday months, we’re not sure it’s going to happen this year. Why? High demand and very low inventory.

For more charts, including one that shows our bubble-pop-recovery cycle all the way back to 1982, click here.

Only sales reported to MLS are included in this analysis. All figures are derived from sources deemed reliable, but should be considered approximate. The data may contain errors and omissions, and is subject to revision. (c) Paragon Real Estate Group

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Focus on Potrero Hill

Back from vacation, and ready to blog and roll!

I’m currently working with a couple of clients looking for homes in the Potrero Hill District.  Here, we’re talking specifically about subdistrict 9.E under San Francisco’s MLS (Multiple Listing Service).

It’s an area that roughly sits between I-280 and I-101, with Cesar Chavez at its the south end and the tangle of 101/Design District/Division at its north end.  With major arteries at all ends as well as proximity to Caltrain, it’s a favorite for people who need good commute access.  It’s also got some of the best weather in San Francisco.  The crest of Potrero Hill sits at intersection of Carolina and 22nd Street.  Homes on the  “north slope” — ie.  north of 22nd Street — boast spectacular views of downtown SF and the Bay and therefore fetch a premium.   Potrero Hill has a small but upscalish shopping/cafe strip located on 18th between Connecticut and Texas.  The recently opened Whole Foods at Rhode Island and 17th hasn’t hurt either.  Architecture is a mix of broad two-story Victorians and newer modern structures designed to take advantage of the weather and the views, especially on the north slope.

Apparently the denizens of Potrero Hill like their neighborhood because there are very few sales.  In fact, based on my review of sales of single family homes back to 2003, there’s an average of just 4 sales per month.  Sometimes there are none at all.  With so few sales each month, I’ve used averages to look at values rather than medians.  Prices seem to have remained incredibly stable over a long period of time.  This chart shows price on a per square foot basis (click to enlarge).

Potrero Hill SFD sales

Potrero has the reputation of being a relatively affordable area, and perhaps it is if you’re talking about Noe Valley or Pacific Heights.  In June 2010, the average home sales price for the city as a whole (based on 217 sales) was $1,107,000 — about $100,000 over the average for Potrero.   However, the average price per square foot for the city as a whole came in at $523 — substantially below that for Potrero.  With so few monthly sales available in Potrero, I’d be cautious about drawing any conclusions from one month.  As the chart trend line shows, Potrero’s price average price per square foot looks remarkably stable at around $560 currently.  That seems consistent with the idea that Potrero Hill is one of San Francisco’s better, if not poshest, neighborhoods.

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Measuring by the Foot: Does it Make a Difference?

Several readers and clients have asked me recently about price per square foot metrics.  Certainly, if you’re trying to figure out how much a home is worth, it helps to get a sense of value by knowing what houses (or condos) are going for in the area on a per square foot basis and multiplying that by the size of the house in square feet.  Elementary my dear Watson.

However, others have been curious about whether there might be a discontinuity between the median price of homes and the median price per square foot, and what that might mean, especially in the context of how much each has fallen from its all-time high.  So I decided to take a look.

The first thing I did was check how often price per square foot was not reported in the MLS (Multiple Listing Sales database) that brokers and other real estate tracking companies use to compile their sales data.  Frequently agents don’t report this because they don’t have any reliable data on how big the house is that was sold or they’re afraid of being sued if they’re wrong.  (I recently learned that when you buy a house in France, the seller must tell you how big it is, and if it’s smaller than stated, the Buyer has the right to adjust the price downwards. I wonder what happens if the house is bigger than expected.)

It turns out that in my database, which goes back to October 2002, price per square foot is reported about 80% of the time on single family home sales.  That’s sufficient to be reliable, so here are the results (click to enlarge).

Median Prices Homes vs Per SF

I would say that overall, and as you’d expect, price per home and per square foot have tracked pretty closely.  It is interesting that during the terrible market freeze of early 2009, the median home price dropped noticeably more steeply than the price per square foot.  There are several possible explanations.  One is that smaller homes were selling better than bigger ones.  Since home price can be reduced to the formula: Area (in square feet)  x Price per SF, if home prices are dropping out of step with a drop in price per square foot, then the Area multiplier must be getting smaller faster.  Furthermore, since smaller homes tend to be cheaper homes, this would give some support to the argument that the higher end of the market has been suffering more than the lower end.  Even if that’s true, it seems to have been a short-lived phenomenon given that both metrics are back in sync as of August.

But the truth is that a lot of factors determine the selling price of a house, not just its size.  Location, views, “curb appeal,” to name just a few.  So I don’t really know how much you can glean just from looking at the areas of disjunction.  For my part, I think this confirms that I’m on solid ground if I use median home prices to look at the state of the market over time.  On the other hand, it also suggests that price per SF could work just as well, and it would be more helpful for people looking to do a value calculation for a particular home.  So I might start using price per sf more frequently.  Please chime in with your thoughts and suggestions.

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