December Market Report-San Francisco

San Francisco Real Estate: A Longer-Term View

December 2011

You may skip the text below and jump straight to the market charts.<= br>
In a world where market ups and downs are blared out every minute, often wi= th great hysteria, it's useful to pull back and look at the home market fro= m a wider perspective. The longer time period and larger number of sales ma= ke statistics more reliable and less confused by normal, relatively meaning= less fluctuations. The longer term also provides a valuable overview for an= investment typically held for 5 to 10 years and often longer.

The UCLA Anderson Home Price Forecast, which has been bearish for years, ha= s suddenly turned bullish and is now predicting a 50% gain in California me= dian home prices over the next 6 years. (They are not the only pundits turn= ing optimistic.) If that turns out to be true - of course, studies have fou= nd that "pundit" forecasts are about as reliable as coin tosses - that woul= d make 2011 somewhat analogous to 1995. In 1996, after a big market drop an= d then years of market-value doldrums, appreciation started to pick up agai= n. And anyone who purchased in 1992-1995 soon looked like a genius, as valu= es then doubled by 2000.

Generally speaking, 2011 values in San Francisco are equivalent to those in= the 2004-2005 timeframe. However, it's important to remember that differen= t neighborhoods within the city were affected differently by the bubble pop= ping, and are now responding differently to existing conditions.

Based on the statistics, improving economic conditions in the Bay Area, and= what we're seeing in the hurly-burly of representing home buyers and selle= rs, we strongly suspect that SF home prices did hit bottom in 2010-2011. In= deed, some neighborhoods, but not all, appear to have begun their recovery = - it is still too early to reach definitive conclusions.

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Note regarding charts below: Median and average sales prices are = different statistics and their definitions follow the charts. In San Fr= ancisco with its huge variety of home types, conditions, views and location= s, there is no such thing as a consistent "median" or "average" home: every= statistic is a generalization based upon whatever basket of relatively uni= que properties happens to sell within a certain time period. Changes of a f= ew percentage points may or may not be meaningful.=20

All information herein is derived from sources deemed reliable, but may con= tain errors and
omissions, and is subject to revision. Sales not repor= ted to MLS are not included in this analysis.

Statistics without informed context are usually worthless, easily manipulat= ed and often misleading.

One can only be sure market values are trending up or down if that trend is= consistent over the longer term, minimally 4 to 6 months. Any definitive t= rend in prices and values should also be reflected in other market statisti= cs such as average dollar per square foot, days on market, months' supply o= f inventory, percentage of listings accepting offers, percentage of distres= s sales, and so on.

DISTRESS HOME SALE can be one of two things: the sale of a bank-owne= d property typically pursuant to a foreclosure (also called an REO sale), o= r a so-called short sale, in which the seller-owner must get lender appr= oval for a "short" payoff, a reduction in the loan amounts due on the p= roperty in order for the sale to close. These 2 kinds of distress sale are = actually different animals, though both can be long, tiresome endeavors to = close because one is dealing with bank bureaucracies. (In 2010 in Californi= a, about 40% of short sales fell through without closing sale.) However, in= an REO sale, the seller is the bank (which may own hundreds or thousands o= f these properties), the property often looks "distressed" and the bank has= very limited disclosure responsibilities (which is a liability to buyers).= In a short sale, the seller is usually the individual owner-occupier, the = property condition is and shows much better, and full seller disclosure law= s apply (the buyer knows more about what he or she is buying). Both types o= f distress sale can be very good deals for savvy buyers and indeed investor= s are buying many of the REO properties around the country. But there are p= otentially greater risks and almost always much greater aggravation involve= d.

=09 MEDIAN SALES PRICE is that price at which half the sales occur for m= ore and half for less. It can be, and often is, affected by other factors b= esides changes in market values, such as short-term or seasonal changes in = inventory or buying trends. Though often quoted in the media as such, the m= edian sales price is NOT like the price for a share of stock, i.e. a defini= tive reflection of value and changes in value, and monthly fluctuati= ons are generally meaningless. If market values are truly changing, the med= ian price will consistently rise or sink over a longer term than just 2 or = 3 months, and also be supported by other supply and demand statistical tren= ds.

AVERAGE SALES PRICE is calculated by adding up all the sales prices = and dividing by the number of sales. It is different from median sales pric= e, but like medians, averages can be affected by other factors besides chan= ges in value, such as fluctuations in average unit size. Averages ma= y also be distorted by a few sales that are abnormally high or low, especia= lly when the number of sales is low. Average sales prices are usually highe= r than median sales prices.

DAYS ON MARKET (DOM) are the number of days between a listing going = on market and accepting an offer. The lower the average days on market figu= re, typically the stronger the buyer demand and the hotter the market. No= te that this statistic is distorted by distress sales, which often have a v= ery high DOM, by that minority percentage of listings that sell after multi= ple price reductions, and by deals that fall through after offer acceptance= (the listings come back on market, but the DOM clock keeping ticking). App= ealing, well-priced new listings often accept offers within 7 to 14 days of= coming on market.

MONTHS SUPPLY OF INVENTORY (MSI) reflects the number of months it wo= uld take to sell the existing inventory of homes for sale at current market= conditions. The lower the MSI, the stronger the demand as compared to the = supply and the hotter the market. Typically, below 3-4 months of inventory = is considered a "Seller's market", 4-6 months a relatively balanced market,= and above 6 months, a "Buyer's market."

DOLLAR PER SQUARE FOOT ($/sqft) is based upon the home's interior li= ving space and does not include garages, unfinished attics and basements, r= ooms built without permit, lot size, or patios and decks -- though all thes= e can still add value to a home. These figures are usually derived from app= raisals or tax records, but are sometimes unreliable or unreported altogeth= er. Generally speaking, about 60-80% of listings report square footage and = dollar per square foot averages are calculated on these listings alone. All= things being equal, a house will sell for a higher dollar per square foot = than a condo (due to land value), a condo higher than a TIC (quality of tit= le), and a TIC higher than a multi-unit building (quality of use). Everythi= ng being equal, a smaller home will sell for a higher $/sqft than a larger = one. (However, things are rarely equal in real estate.) There are often sur= prisingly wide variations of value within neighborhoods and averages may be= distorted by one or two sales substantially higher or lower than the norm,= especially when the total number of sales is small. Location, condition, a= menities, parking, views, lot size & outdoor space all affect $/sqft home v= alues. Typically, the highest dollar per square foot figures in San Franci= sco are achieved by penthouse condos with utterly spectacular views in pres= tige buildings.=20

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