The Autumn SF Real Estate Market Survey: “We are neither blind optimists, nor inveterate pessimists….”


Our Chief Market Analyst, Patrick Carlisle, was recently quoted in a Vanity Fair article in the same paragraph as renowned economist John Maynard Keynes. The subject, a perennial one these days: whether the Silicon Valley, which now indisputably extends north at least as far as the new Salesforce Tower at 415 Mission Street, is in a bubble that’s about to pop. Of course, Keynes is long-dead, but we at Paragon are lucky to have our own resident guru sifting the tea leaves.

Below are excerpts from his September newsletter (you can find the complete version here), with some conclusions that I’ve highlighted. For those who want to cut to the chase, Patrick’s main takeaways are these:

  • Over the last 50 years, the San Francisco Bay Area Housing market has never crashed independently of other broader sustained national conditions.
  • Bubbles take longer to burst than people think.

So without further ado, read Patrick’s take on how the typically robust autumn real estate market is shaping up – or down.

Autumn SF Home Selling Season Begins Against A Backdrop of Market Volatility

Real estate markets are essentially determined by the balance – or imbalance, as is often the case – between buyer demand and seller supply of homes to purchase. Underlying that dynamic are economic, political and demographic factors – some local, some not – such as population growth, employment, new home construction, high-tech booms, consumer confidence, interest rates, affordability, IPOs, stock market movements, shenanigans in Congress, and SF ballot proposals, to name a few. Even environmental factors, such as droughts and earthquakes, can jump in and affect the market. These factors are all jostling for effect, ebbing and flowing, sometimes appearing out of nowhere to shake things up, or suddenly shrinking and quickly forgotten.

We are neither blithe optimists, for whom boom times will never end, nor inveterate pessimists, who see bubbles and crashes behind every shrub. For what it’s worth, based on our survey of current economic fundamentals, we don’t expect an imminent crash in the U.S. stock market or in Bay Area real estate values. (This short New Yorker article is excellent on recent market volatility: Drop in the Bucket). However, economies and markets naturally experience fluctuations – short-term ups and downs, times of slowing and flattening – and it’s certainly possible that the balance between buyers and sellers might shift, that the frenzy in our market may subside, and that home prices may plateau or even tick down to some degree. On the other hand, due to the scale of our high-tech boom (another area of exuberantly conflicting predictions) and our deeply inadequate supply of housing, demand may continue to exceed supply, and the pressures of recent years may continue until new-home construction makes a more significant contribution to inventory.

Two points are worth making for context: Firstly, over the last 50 years, the SF and Bay Area housing markets have never dropped in isolation from national conditions, i.e. each crash or significant “correction” occurred in conjunction with a sustained, negative, national economic event. (Short-term stock market fluctuations, even if dramatic, typically have no significant effect on our home prices.) Secondly, bubbles almost always take longer to form and crash than most realize: People started to talk about a bubble in 1998 and 1999, and said it couldn’t go on, but what was called the dotcom bubble kept growing – and actually accelerating – for another 2+ years.


New Listings Coming on Market


September is usually the single month with the greatest number of new listings, and those that hit the market in the 4 to 5 weeks after Labor Day feed the vast majority of autumn sales activity until the market goes into hibernation mode in mid-late November. Preliminary indications are that this may be a very big new-listing month, even for a September. If this is true, and especially if it marks the beginning of a trend of more listings coming on market, that could cool the ferociously competitive, low-inventory, “seller’s market” of recent years. If buyers are more hesitant due to recent financial-market volatility, that would also cool the market. But, in our opinion, neither factor is likely to flip us into a crashing or recessionary market.


Percentage of Listings Accepting Offers


This chart illustrates the surge in buyer demand from the end of the last recession through the 2012 – 2015 recovery. Having the percentage of listings accepting offers over 50% and sometimes well over 60% in a given quarter – extremely high percentages historically – has applied consistent upward pressure on home prices. Demand usually peaks during the spring and autumn selling seasons, i.e. in the 2nd and 4th quarters.

Additional market indicator analyses can be found here: SF Market Overview Analytics


S&P Case-Shiller Home Price Index


An updated Case-Shiller Index chart for the 5-county San Francisco Metro Area, outlining the real estate market cycles going back to the 1980’s. (The June Index was released on August 25th.) It is noteworthy that over the past several decades, we’ve never seen a crash or significant “correction” in our local market that was not in conjunction with a major, national economic event. This chart also suggests that SF buyers who purchase homes 1) they can afford in the first place, 2) using fixed-rate mortgages, and 3) for longer-term ownership (and don’t constantly refinance out increasing equity), usually come out all right, and often fabulously well, despite periodic market declines. Of course, if circumstances require one to sell at the bottom of the market cycle after buying at the top, then the situation can be painful.

“Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.”

Homeownership & Wealth Creation, 11/30/14, NYT op-ed article


Bay Area Housing Affordability


The California Association of Realtors recently released its Housing Affordability Index (HAI) for the 2nd quarter of 2015. All Bay Area counties saw declines in their affordability index reading – which measures the percentage of households that can afford to buy the median priced single family dwelling (house) – and San Francisco is now only 2 percentage points above its all-time low of 8%, last reached in Q3 2007.

Very low affordability at a time of very low interest rates is certainly a concern, but housing affordability is a complex subject and there are other factors at plan in San Francisco. Our full report, which also charts median home prices, rents, interest rates, inflation-adjusted housing costs and household income by county is here: Bay Area Housing Affordability


Median Home Prices and Economic Indicators

A glance at recent movements in San Francisco’s median home sales price, as well as at a few longer-term local and national economic indicators.

Monthly fluctuations – often seasonally related – have been common since 2012, but home prices have consistently climbed higher over the longer term.


National and San Francisco unemployment trends: Very positive.


Over 100,000 new SF jobs – many of them very well paid – have been created since 2009. (The housing supply has increased by less than 15,000 units.)


Price to Earnings (PE) Ratios of the S&P 500 Index climbed a bit high in mid-2015, but not egregiously so compared to historical averages.


Our goal is not to convince you of a certain position, but to provide you with what we believe to be straightforward data, so that you can make your own informed decisions. We cannot predict the future with any certainty, especially in a world with so many moving economic and political parts.

For my part, I think that worse things could happen than for the San Francisco housing market to take “a breather.” For the many exhausted and frustrated buyers out there, it would represent new hope that they could finally succeed in purchasing a home on sane terms and at a (relatively) sane price. Sellers who continue to expect to receive dozens of offers at a 30% premium over the list price may well be disappointed if the market cools. But, in the long run, a market that is in better equilibrium is one that is likely to continue for longer than one in which the wheels are in danger of spinning off. And that wouldn’t be good for anyone.

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


These analyses were made in good faith with data from sources deemed reliable, but they may contain errors and are subject to revision. Statistics are generalities and all numbers should be considered approximate. Sales statistics of one month generally reflect offers negotiated 4 – 6 weeks earlier.

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