According to the S&P/Case-Shiller Home Price Index, single-family home values in the San Francisco MSA ticked up a nominal 0.2% from January to February of 2014. Up 22.7% on a year-over-year basis, the San Francisco Index remains 16.7% below a May 2006 peak.

For the broader 10-City composite, home values were unchanged from January to February but remain 13.1% higher year-over-year, 20.5% below a June 2006 peak.

“Despite continued price gains, most other housing statistics are weak. Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005. Mortgage interest rates, which jumped in May last year and are steady since then, are blamed by some analysts for the weakness. Others cite difficulties in qualifying for loans and concerns about consumer confidence. The result is less demand and fewer homes being built.

Home values ticked up across all three price tiers in San Francisco for the first time in five months.

P/Case-Shiller Index San Francisco Price Tiers: February 2014 (www.SocketSite.com)

The bottom third (under $489,988 at the time of acquisition) gained 0.7% from January to February (up 33.0% YOY); the middle third gained 0.7% from January to February (up 20.6% YOY); and the top third (over $780,988 at the time of acquisition) gained 0.9% from January to February and is up 20.4% year-over-year.

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back above September 2003 levels (36% below an August 2006 peak); the middle third is back above August 2004 levels (18% below a May 2006 peak); and the top third is just below April 2006 levels and within 3% of an August 2007 peak.

Condo values in the San Francisco MSA gained 1.2% from January to February, the first gain in five months, and are up 22.6% year-over-year and within 4.0% of their December 2005 peak.

S&P/Case-Shiller Condo Price Changes: February 2014 (www.SocketSite.com)

Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).

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Comments from “Plugged-In” Readers

  1. Posted by johny be good

    I just wish the Fed would raise the interest rate soon. That would (hopefully) put a brake on this madness. That, and all the housing being built in the City would add to the supply. I wonder what the rest of the year and 2015 will be like. This seems like a lousy time to buy real estate in the City.

  2. Posted by anon

    Yep it is a lousy time to buy real estate in SF.
    But the Fed’s raising rates would be exactly the wrong prescription. Employment remains weak and the economy’s growth is pretty anemic. Fortunately, the Fed isn’t going to raise rates any time soon.

  3. Posted by mission

    It’s a great time to sell real estate. Just sold my condo. Unbelievable demand out there and very little competition.
    We may not see interest rate increases until 2017. The fed won’t raise rates until they fully stop their bond purchases and that will take the rest of this year. If they don’t start raising rates in 2015 they may be very reluctant to start raising rates in 2016 because it is a presidential election year. I think the economy and job market will have to be very strong before rates start to go up.

  4. Posted by REpornaddict

    Agreed. SF seems to be really reaping the benefits of its incredible localized strength right now.
    With high employment, low supply, high demand – but because the bulk of the nation isn’t doing anywhere near as well, interest rates stay low.
    ‘It’s all micro, bro, as someone on her said sometime, I think.

  5. Posted by J

    “But the Fed’s raising rates would be exactly the wrong prescription. Employment remains weak and the economy’s growth is pretty anemic. Fortunately, the Fed isn’t going to raise rates any time soon.”
    Anon, I assume you’re referring to nationwide? Because employment has never been stronger in SF, same with growth. And raising rates would be the right prescription to slow down the SF housing insanity in terms of price appreciation and 15-20 bidders per property. But it wouldn’t make monthly payments cheaper. And even though conventional wisdom would say higher rates would decrease real estate development here, that’s bogus right now. Higher rates didn’t stop development in 2004-2007, and there is far more money sloshing around now than there was back then.
    However, given that the Fed is completely incompetent, they will probably keep rates at zero for another 3 years to make it a full decade at zero. Their current policy has caused a mis-allocation of capital on par with the dot-com bubble and housing bubble, and it will be ugly yet again when this bubble pops.

  6. Posted by Jobson

    I bought a foreclosure in Oakland a few years ago and the price has tripled. It would have to quadruple to get back to peak of the bubble pricing.

  7. Posted by AnotherJ

    @J
    So you advocate raising rates, which can only be done on a national level, just because housing prices are high in SF? Is your memory so short that you forgot that Greenspan’s untimely raising of rates is what led to the national implosion of housing and the foreclosure crisis in the first place? (which contributed to the financial collapse due to mortgage-derived securities).
    Regional housing issues are due to regional housing policies and their contribution to constrained supply. Another contributing factor was (and still is to some degree) banks’ hesitancy to lend to developers who would have loved to have begun projects 24 months ago when the first signs of local housing recovery began…
    Raising rates would be quite ill-advised at this point in time.

  8. Posted by anon

    Twitter down (after hours) to below its Day 1 price. The deflating of the tech bubble is what will calm SF prices. Latest party was great, but it’s ending. But, unlike 2001, we are left with a good core of very sound businesses that will keep the area strong even after the mania is over. Anyone looking for housing bargains is going to be disappointed, and better to be a seller than a buyer for the foreseeable future, but we’re not going to keep seeing the wild run-up in prices. In line with inflation or a tad better.

  9. Posted by J

    @AnotherJ
    My paragraphs 2 and 3 were unrelated. Obviously the Fed shouldn’t use SF as a baseline for the entire country. However, their policies are having pronounced effects on SF.
    However, I find it hilarious that you blame Greenspan’s RAISING of rates as the cause of the housing crisis, rather than the actual cause, which was keeping rates so low for so long. That is fact, not opinion. The Fed’s policies created the biggest credit bubble in history. Which of course was followed by the biggest credit crisis in history. They should have raised rates years earlier and we never would have had a housing bubble/crash in the first place.
    Rates, yet again, have now been at zero for 6+ years, and not surprisingly, this has caused yet another bubble (in Treasury Bonds, Corporate Bonds, Junk bonds, stocks, housing in some locations, venture capital, tech, and the list goes on). If you believe in having massive booms followed by massive busts and recessions and depressions as default monetary policy, then by all means, keep cheering for 0% rates for another 7 years. But when it all comes crashing down next time, don’t blame the increase in rates, blame the fact that they were at zero for a full decade.

  10. Posted by anon

    That is fact, not opinion. The Fed’s policies created the biggest credit bubble in history.
    You know this is “fact”, how?

  11. Posted by anon2

    “It’s a great time to sell real estate.”
    Which begs the question that since it’s such a great time to sell, why are so few people selling?
    Both in SF and nationally existing home inventory is pretty low. For SF, though of questionable reliability, that Paragon survey might have one clue. If many people selling in SF are moving out of the city/area then it presumably takes some time to scope out other areas and plan to move your family.
    For new construction it’s much clearer that there’s a big lead time for supply to come online in response to prices. And you do see a lot of cranes and construction in SF. Nationally, new home starts and mortgage applications aren’t that strong. I suspect that nationally there is a growing disconnect between prices and affordability. I think that builders will resolve this by going downscale and building lower priced homes to try and increase volumes
    “Twitter down (after hours) to below its Day 1 price. The deflating of the tech bubble is what will calm SF prices.”
    This will certainly be interesting to follow. Tech has been a big driver of buying activity in SF.

  12. Posted by mission

    I think so few people are selling because it’s cheap to hold and too expensive to move.
    I know lots of people in fixed mortgages in the low 3% range and lots of others who have seen their ARMs reset year after year at 3% or so. Many owners who had to move during the downturn (or before the huge upswing) are renting their places out a crazy high rents and making money due to low costs. This is true even for those who bought at the high point of the housing bubble. We moved out of the city so it was a great time to cash out. I know sellers who don’t even have a plan they are selling because it was too much money to turn down when just a few years ago they were almost underwater.

  13. Posted by Jake

    Redfin recently did a report on causes of low inventory. Not sure I agree with their analysis, but they provide data for about 30 markets including SF, SJ, and many others in CA.
    The SF Fed published a more quantitative analysis back in October 2013 that seems to make sense:
    “On balance, counties that experienced relatively large increases in house prices over the past year also experienced relatively large declines in inventories available for sale.
    It turns out that variables such as recent house price appreciation and changes in employment are the most robust predictors of recent changes in housing inventory. In other words, once we account for changes in house prices and employment in a county, other variables, such as changes in the for-rent inventory, the underwater share, or local price-rent ratios, do little to explain the inventory of houses for sale. Thus, current homeowners may be making a rational choice to postpone selling in the hope that prices will rise further. However, this behavior tends to be short run. In the longer run, the link between the level of house prices and for-sale inventories is strong. If prices continue to rise, inventories for sale should eventually rise too.”

  14. Posted by AnotherJ

    @J
    Interesting that you blame the low interest rate environment for the creation of an asset bubble rather than the deregulation of financial markets — you must be in Finance. :-)

  15. Posted by J

    @AnotherJ — I actually totally agree with you. Although it wasn’t deregulation, it was non-regulation. An embarrassing failure, as the big banks and rating agencies ran wild. But guess who the most powerful regulator in America is? The Federal Reserve.

  16. Posted by anon2

    @Jake — Thanks for the interesting links.
    Some of the Redfin data is interesting, though I agree with you that the Fed analysis seems better. Looking at their figure that only 0.26% of the SF (Metro area?) housing stock is up for sale highlights why housing prices can be so volatile. And also illustrates the problem with assuming that price movements based on a very small number of transactions speak about the region in general.
    In the Fed paper, Figure 1 is very interesting as it shows that in general inventory does seem to follow home prices as you’d expect. (And they reference a statistical analysis to this effect) It’s only recently that you appear to see this counter cyclic behavior where prices are up sharply, yet supply down. Their explanation for the counter cyclic behavior, that expectation of rising prices cause sellers to wait for an even better time to sell, makes some intuitive sense. But that begs a follow up question of: Why now and not in the past?
    I had been assuming that there was some irrational loss aversion (or short sale difficulty) that made people treat the difference between going underwater and overwater differently then normal price change expectations. But the Fed paper found little correlation with inventory and underwater share as you point out.

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