December 22, 2006

It’s Not Only The Leaves That Appear To Be Falling In San Francisco

Listed (MLS) San Francisco Condo/Coop/TIC/Loft Sales

A “plugged in” tipster forwards an autumn to autumn comparison of listed (MLS) condo/coop/TIC/loft sales in San Francisco. Yes, they’re averages. Yes, seasonality is in full effect. And no, the majority of new construction isn’t included.

That being said, we do find the year-over-year drops in average sales price – down ~4% for resales – noteworthy. Or as our tipster writes, “[e]ven though those of us in SF arrogantly talk about the local market as one that doesn't see dropping values (but rather diminished appreciation), this data says otherwise.”

And it begs the question, is this “the drop” sidelined buyers have been waiting for, or is it simply the start of a longer, and larger, fall? (And yes, pun intended.)

UPDATE (12/27): The chart we originally received was incorrectly labeled “condos” as opposed to “condos, coops, TICs, and lofts,” but the data is correct (compiled by SFARMLS). We are, however, attaching an additional “mix” disclaimer.

Also, keep in mind that “sold” data only includes properties that actually closed escrow in the given month (as opposed to entering into contract). Adding pending sales to the mix (below) is probably a more accurate reflection of the market and brings the average change closer to -0.5%. We’d attach a “timing” disclaimer, but this is starting to get ridiculous…

San Francisco Autumn Sales: Sold and Pending

First Published: December 22, 2006 2:50 PM

Comments from "Plugged In" Readers

I'd be curious about how the comparison looks on a price-per-square-foot basis (i.e., using size as a very rough proxy for quality), and also on a neighborhood-by-neighborhood basis. Anyone have the numbers?

Posted by: Chris at December 22, 2006 5:54 PM

Miss Information!!

A “plugged in” tipster forwards an autumn to autumn comparison of listed (MLS) condo sales in San Francisco. Yes, they’re averages. Yes, seasonality is in full effect. And no, the majority of new construction isn’t included.

That being said, we do find the year-over-year drops in average sales price – down ~4% for condo resales – noteworthy. Or as our tipster writes, “[e]ven though those of us in SF arrogantly talk about the local market as one that doesn't see dropping values (but rather diminished appreciation), this data says otherwise.”

And it begs the question, is this “the drop” sidelined buyers have been waiting for, or is it simply the start of a longer, and larger, fall? (And yes, pun intended.)

The actual data, from the San Francisco Multiple Service, as of Friday, December 22, 2006 at 9:00 PM is as follows:

Sept October November December
2005 $779,826 $812,326 $781,356 $747,614
# 270 276 269 260
2006 $772,850 $840,276 $821,252 $864,366
# 183 185 217 118
* Thru 12/22/06
% $ Price change
-0.89% 3.44% 5.11% 15.62%

Before Socket Site promotes in-accurate sales information, it's editors should check the data. It's obvious that a “plugged in” tipster wants to mislead the readers of SocketSite.

Frederick

[Editor’s Note: Frederick, thanks for helping to keep us honest (honestly). We don't believe our tipster was trying to mislead anyone, but simply misread the SFARMLS reports (we now have the originals). And ironically, the point our tipster was trying to make is that perhaps we’ve already seen the “pull-back” that sidelined buyers have been waiting for before jumping into the market.]

Posted by: Frederick at December 22, 2006 9:39 PM

I need some help here...these figures are based on re-sales, correct? How does this info. translate to the new condo market, if at all?

Posted by: deshard at December 22, 2006 9:41 PM

Hello deshard,

The sales data I posted regarding the actual sales data from the SFARMLS, is all re-sales. The SFARMLS stopped reporting "New Development Sales" in 1999. It is a shame this data is not made available to the general public, as the number of transactions of new developments in San Francisco reflects 20% and higher of the overall market(re-sales plus new condo/homes).

As you probably know there are over 250 "hard deposits" at One Rincon Hill. These are sales confirmed by 3% deposits that are not refundable, made by Buyers that have had their loan condition approved by the developer. Unless there is a significant downturn in our economy, which results in the un-employment rate increasing to 9% or more (as in 1981-84) and a real recession, the majority of those pre-sales at One Rincon will close.

Now, did those sales take place in October, 2006 or will they actually take place in 2008 or 2009.

My position is that those sales took place on October 2006, when the deposits became "at risk". If you look at the initial deposits for the Four Seasons in 2000, (20% downpayments), the majority of those sales were completed, similar to the pre-sales of the St Regis in 2006.

So if you add 250+ (and maybe more) sales to the October 2006 sales from the SFARMLS you have a 65% increase in the number of condo sales in October 2006, as compared to October 2005. Also this does not include confirmed pre-sales at the Infinity (200+??)and the other new projects in SF.

I believe the average sales price for those in escrow at One Rincon Hill is $1,050,000+. Again adding these sales into the re-sale market and you actually have a flaming hot real estate market in San Francisco. Too bad all the data is not public.

Now you know why developers are proposing 600 to 1,200 ft tall skyscrapers, designed by some of the world’s most prominent architects.

Frederick

Posted by: Frederick at December 22, 2006 10:21 PM

Frederick, help me out. Reading your post, I would have to assume that based on what you said, I would expect everybody and their mother to be trying to sell their properties in South Beach/Rincon area to take advantage of the "flaming hot real estate market." But, at least for me, I have not seen lots of new inventory hitting the market over the last few months (yes, I will admit its nearly Christmas). So, can I assume, based on your thoughts, we should see lots of new inventory hitting the market for these areas after the first of the year? Or are people not "plugged in" to what's hapening in said areas and if they were, we would be swamped with properties hitting the market?

Posted by: Can't think of cool name at December 22, 2006 11:16 PM

The optimist (was it Federick) previously posted the numbers for condo sales taken alone, which show a steadily rising market over the last three years. It might be the case that the relatively flat figures for "condos, TICs, and lofts" reflects an increasing proportion of TICs in the mix--which could be rising at the same rate as condos, albeit from a lower baseline. But I don't have access to the data . . .

Chris

Posted by: Chris at December 27, 2006 7:54 AM

Again adding these sales into the re-sale market and you actually have a flaming hot real estate market in San Francisco.

Puhleeze. Have you been looking at any open houses/listings lately? At least in the SOMA area, it's very slow. For example, at the Met, the listings are sitting there and there are multiple reductions. Same with 199 New Montgomery. People are buying, but they aren't paying full listing price and there's a lot of inventory.

Posted by: Mike at December 27, 2006 8:28 AM

In simple terms, someone exlain to me why the bottom chart has prices UP YoY, and now the new spin is that it's DOWN YoY?

Come on guys, it's so obvious prices are up this year. Have you looked around your SF neighborhood? Have you seen Wall St. bonuses at $24 BB this year, 20% HIGHER than 2000? Have you seen the stock market, at a new RECORD HIGH? Have you seen the new November housing data?

http://money.cnn.com/2006/12/27/news/economy/newhomes/index.htm?postversion=2006122711

Posted by: Anonymous at December 27, 2006 9:06 AM

Agreed with Mike. How can we be seeing price reductions in a "flaming hot market"?

I'd wager that sales mix is a big part of this. The showcase properties are still being bought by the poodle-in-a-purse botox crowd so they can tell their friends at the regatta that they now have a condo in SF to add to their collection of vacant homes.

I go into any open house I see just for kicks. In the last few months, most all of them have been quiet with people just browsing. Agents continually repeat that if seller doesn't get their asking price, they're pulling off the market to wait for spring.

Posted by: Dude at December 27, 2006 9:10 AM

"I'd be curious about how the comparison looks on a price-per-square-foot basis (i.e., using size as a very rough proxy for quality), and also on a neighborhood-by-neighborhood basis. Anyone have the numbers?"

I agree completely. The per sqft numbers are the most meaningful to me and not only that, it's sort of meaningless unless you segregate the housing into free-standing units (let's say 10 or less units in a project) versus high-rise buildings with many units. Those two things really are apples and oranges.

Posted by: Anonymous at December 27, 2006 10:08 AM

OK, I'm confused by what the agent told Dude; that if the seller doesn't get what they want they are pulling it off the market and waiting for Spring. Isn't that even worse? By Spring, there would be not only lots of competition from current offerings and new ready to move in units, but also the new building's sales offices would be competition as well - right?

Seems to me that if they want to make any money in the near term, they would try to sell ASAP or end up sitting on their properties for at least a couple more years, not months - until the flood of inventory runs it course through the system.

What am I missing?

Posted by: Can't think of cool name at December 27, 2006 10:27 AM

"What am I missing?"

The final weeks of the year are traditionally part of a very slow selling season. So, if your home is still on the market, few if any people are looking at it, it's getting little or no attention, and essentially it's just collecting DOMs (days on the market). It's a great time for buyers who want to pick up a bargain. Spring is a busier time of year in real estate. More buyers are looking, offers are being made, and more sales are closed. So, it's a time of greater activity and demand. Properties are likelier to get more attention and offers. Buyers may also wait until spring on the hope that more properties they might consider will be on the market.

Posted by: SeeHsee at December 27, 2006 12:25 PM

The $psf number is not going to tell you much in a market where volumes are off by 35%. Last year, the psf prices included a wide mix of fixed up to run down properties.

This year, almost nothing sells that isn't fixed up. So the psf prices you are seeing this year are for a much higher quality property than last year. Even if psf hasn't dropped, or even increased, it tells you nothing about prices.

To learn about what prices are doing, you have to do your homework. Look at open houses, look at sold prices from this year and last, and then draw your own conclusions. The desire to sit in your chair and look at stats isn't going to be of much help, I'm afraid.

It would be as simplistic as believing that, because finance people got bonus checks (most of which were distributed in NYC, not here), they will spend then foolishly on housing. A few bonus checks look really good, until you realize that the people who got them are financial wizards, who are going to drive the hardest bargain they can. A far different cry from the 22 year old dot com millionares who weren't terribly financially savvy.

Posted by: tipster at December 27, 2006 12:57 PM

Are volumes really off 35%?

As for spring, my prediction is that we see a flood of properties come on the market to a similar pool of buyers. Not to mention banks, tempered by rising foreclosures, will actually start scrutinizing and underwriting mortgage loans instead of handing them out like toasters. Translation: more downward pressure on prices. Just my opinion.

Posted by: Dude at December 27, 2006 1:21 PM

Cliche but true. It is all about the location.

But if the market takes a dive the best locations will just not lose as much value as the less desirable locations.

However, I consider the high rise market to a little insulated from the location issue. People are not buying these units for the surrounding area, they just want proximity to the city action. It becomes the stregnth of the building, view, design, ease of living (which is tied to location somewhat). But you are never going to have the experience of walking down to your corner pub living in a down town high rise. The math does not work out for that type of use. But you will be living in premier top of the line unit, which is difficult to find in older housing stock of the rest of the city. Tradeoffs...

Posted by: peanut gallery at December 27, 2006 2:07 PM

Clap...clap...clap...

Thanks Socketsite for this breaking news that we've never heard before. The real estate market is crashing. The sky is falling. Oh my goodness!

[Editor’s Note: You’re welcome. Oh, wait a minute, that was probably supposed to be sarcasm, right? Keep in mind that we’ve never said the sky was falling, the market’s crashing, or the world is coming to an end. (Is that really your interpretation?) We are, however, quite willing to call a spade a spade (whether bearish or bullish). And we firmly believe that’s the only way to effectively mange buyers’/sellers’ expectations (and to help inform their decisions). Regardless, thanks for “plugging in.”]

Posted by: Anonymous at December 27, 2006 3:28 PM

Let's save a lot of messages with the folliwing statement:

There is SUBSTANTIAL downward pressure on prices EXCEPT in the one area in which YOU:

a) live
b) just bought
c) sell real estate.

*All* other areas will see price declines. Your area is different, and fully insulated from any and all declines. Forever.

Posted by: tipster at December 27, 2006 4:23 PM

Word of the season:

Stagnant

Posted by: Anonymous at December 27, 2006 7:35 PM

Man, has this past year ever been a pressure cooker for me! The housing market started to tank at the end of the summer, but I had to keep it alive for fear of a market collapse influencing the November elections. Boy, did I just avoid that one, when Christmas began to approach. I had to hold the housing crash off again for fear of wrecking the economy by putting a crimp in Christmas spending.

But now, next Christmas is a LONG, LONG way away, and so are the next elections. If ever there was a time to let the steam out of the housing market, this would be it. And in fact, I'll WANT to make sure it happens this spring, because if I wait, it may happen on its own next Christmas or the next election, and that would be a much worse outcome for the country.

No, better to pop this thing now while I have the chance and the impacts will have less of a chance to spread through the rest of the economy or impact the next election. This spring is my one best chance, just like the dot com crash happened in the spring of 2000 to avoid the Christmas season. Well, I have my work cut out for me for the next couple of months. Bye!

Posted by: Ben Bernanke at December 27, 2006 8:08 PM

There are lies, damn lies - and statistics

Posted by: Anonymous at December 27, 2006 8:19 PM

I like Socketsite because it's an informative source of real estate information. What I don't like is Socketsite's agenda of negating any positive NAR statistics, and pointing out - with emphasis - all negative signs of the market. I'm aware that there's no such thing as unbiased information so I'll just have to live with it. And you're welcome for "plugging in."

- Anonymous at December 27, 2006 3:28 PM

Posted by: Anonymous at December 27, 2006 11:40 PM

The NAR, and realtors on every site like this one do a fine job of blowing out of proportion any data that can even be misinterpreted as being positive.

I for one appreciate the balanced job socketsite does. I think you feel some data is negative because you have become so accustomed to hiding that stuff under the rug and making sure your happy face is on when the public is concerned that you think a lack of positive bias is negative.

People are smarter than you think. If negative info is blown out of proportion here, we'd see past it. [Removed by Editor]

We appreciate socket site. If you have data counter, socket site editors let you post that, and they even retract when things look wrong. I think this is the most unbiased site out there.

[Editor’s Note: Thank you for the vote of confidence, we’re doing our best.]

Posted by: tipster at December 28, 2006 8:39 AM

Let's be pragmatic. Real estate, like every other asset on this planet, trades in a market based partly on psychology (media influence, perception, etc.) but mostly on fundamentals (prices vs. wages, buy vs. rent economics). Real estate is also cyclical, especially here in California.

We're currently on the tail end of the biggest real estate boom in the history of this country. 5 years of unprecedented appreciation, in the double digits in many cities, including San Francisco.

So is it outside the realm of possibility to assume that prices will have to go flat or even fall to even things out over the next few years?

Question: What's going on with prices in San Diego, Sacramento, and the wine country? And why will that not happen here?

Posted by: Dude at December 28, 2006 9:40 AM

Tipster,

[Removed by Editor]

This is what I'm talking about - you and Socketsite are so pissed off at realtors, the NAR, Donald Trump, Robert Kiyosaki, and all who invest in real estate that you get so excited about any hint of negative signs in the real estate market. It's just a minor complaint and I'm not asking or expecting you guys to stop pouring over data to find negative stuff to post.

[Editor’s Note: For the record, we’re not pissed off at any of these folks (although we’re not so keen on The Donald’s taste in decor); we’re not excited by, nor do we seek out, negative signs for the market (we believe in presenting accurate information about the market, be it positive or negative); and our only agenda is to keep our readers “plugged in” to what’s really happening in the local market and three steps ahead of those who aren’t.]

Posted by: Anonymous at December 28, 2006 1:42 PM

The reason why the second chart shows less of a drop and a better market is due to the inclusion of pending sales. Pending sales on MLS are reported at their listing price, not their ultimate closing price. Assuming there are more below listing price sales these days (as opposed to sales at or above the listed price), then this chart will show more of a decline once those pending sales record as closed sales. So, I think the first chart is more reliable. And yes, there are many things which weaken the reliability of such MLS based comparisons, but it's a good start. A more reliable way is looking at comparable sales within the same development over these two periods. But even that can be unreliable due to varying seller/buyer motivations and different levels of market savvy/knowledge/expertise among the players. The bottom line is that real estate is hardly a perfect and orderly market - each piece of real estate is relatively unique, transaction volume is relatively low, and buyers and sellers have vastly different levels of expertise and knowledge. So these imperfect statistic are going to be about as good as you can get.

[Editor’s Note: Great point with regard to pending sales being reported at list.]

Posted by: Anon at December 28, 2006 3:26 PM

Question: What's going on with prices in San Diego, Sacramento, and the wine country?

Was that a rhetorical question? Or did you really want to know?

http://www.car.org/index.php?id=MzY4NzU=.

I suspect that was a rhetorical question. . .

My personal observations:

There will be/are some definite declines in value for certain neighborhoods and certain kinds of SF properties, like SOMA lofts and TIC's everywhere (unless they're in 2U buildings).

I'm still seeing multiple offers and rising prices for certain kinds of homes-- A small house in Mt. Davidson Manor that needed everything was listed for $769,000 and went into contract for about $850,000; and a 2br view condo at The Portside(South Beach) listed for $849,000 received five offers (I don't know sales price yet).

Sellers who are 'pulling their property off the market until the spring' are probably not truly motivated. And there's no guarantee that the spring market will be better. In my experience, San Francisco is an anomaly when it comes to seasonal selling cycles. I do agree, however, that this past month has been a great time to buy.

Adding new homes to the mix in estimating the values of condominiums in SF is (I think) a mistake if you're a buyer or seller in SF who is trying to figure out if their home went up or down in value. Price per square foot for new is usually a whole lot higher.

Finally, I hate (hate!) stats that mix condos and TIC's together. The TIC market has tanked over the past year. I would be inclined to pull TIC's out of the mix when comparing year-to-year sales prices for condos. I think this point has been covered in this thread, however.

PS: Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital. ~Aaron Levenstein

[Editor’s Note: We agree. Yes, even with regard to the mixing of TICs and condos (unfortunately they were combined in the SFARMLS reports we received).]

Posted by: Cece Blase at December 28, 2006 6:45 PM

I think the reason for a lot of the acrimony and bickering here and nationally regarding Real Estate professionals (esp. Realtors) is that people generally don't respect the information they're being given. I'm not a RE pro, but if someone were to come tell me that I don't know what I were talking about with regards to pricing tax deals, I would be peeved. RE Professionals deal in the comings and goings of their respective market 24/7 and come to believe that they know pricing, value, locations, what have you.

The reason for the underestimation or downright lack of respect for what Realtors do lies squarely at the feet of the NAR. The perception is that it's too easy to become a Realtor. There are no well known organizations that sift the expert Realtors from the lesser Realtors. Their chief economist is usually dismissive and unwilling to brook any reasonable debate on the state of the market. There's no control on what it's members are able to tell the media, allowing the mediocre or bad ones who could make the whole profession look bad to do so.

Personally, I think that while the Realtors are hurting their perception in this national debate on housing, that they may be right in a bass-akwards way. The academic and gut-feel models of the naysayers may in fact be wrong.

Posted by: RipTheJacker at December 28, 2006 7:50 PM

Socketsite - Honestly, it's too obvious you guys are not homeowners and have an agenda. To deny prices up 5-8% this year in SF is very silly. You do realize that unemployment is at 4.5%, the 10-yr is at 4.6%, and wage inflation is very healthy right?

Can you guys please just admit your position as renters? Nobody will blame you, it'll just be that much more apparent. You do realize there are tons of examples of houses going way over asking to new record prices right? And yet, you guys continue to just focus on Tier 3 locations where overbuilding is obviously occuring.

Have a disclaimer, and you guys will get more respect.

Posted by: Anonymous at December 28, 2006 8:17 PM

"Have a disclaimer, and you guys will get more respect"

We'll talk about the "respect" later. I am a renter now, having just sold my house in San Francisco. No point owning in this environment (mortgage, maintenance, homeowners insurance, earthquake insurance, property tax).

Good luck to you brave souls. Keep the party going.

Posted by: Anonymous at January 3, 2007 8:02 PM

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