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What’s New in San Francisco New Developments
There are a number of new developments in San Francisco that are being planned, in progress, and selling out as we speak. Here’s a selection of projects around the city to give you an idea of recent changes, ones that are currently happening, and ones that are just around the corner.
Status: In planning, approved, about to break ground, breaking ground.
Status: Under Construction, almost complete, pre-sales.
Status: Selling, almost sold-out, sold-out.
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Tentative Signs of a Shifting Real Estate Market
February 2014 San Francisco Market Report
It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts. From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, 3 or 4 are coming in now; where 3 or 4 offers would have arrived, the seller is getting 1. And, according to Broker Metrics, for every 2 listings that accepted offers in December and January, another listing expired or was withdrawn without selling.
The amount of competition deeply affects home price increases.
There are still a very large number of buyers looking at listings online and at open houses. But more of them appear to be first-time buyers and they are proceeding more cautiously. Some buyers are burned out on the multiple-offer bidding frenzies of last year and are reluctant to participate in them. Though the market remains hot by any reasonable standard, by some statistical measures it is cooling. This may reflect a transition or only a lull before the spring sales season begins.
Recently, the investment-property analysis firm Reis speculated that SF apartment-rent growth — which has been extraordinary by any measure, especially in a period of low inflation — will slow despite intense demand and very low vacancy rates, simply because people can’t pay any more. It’s an idea which may or may not be correct or apply to other types of housing costs. Rent rates do play a role in purchase prices as buyers often compare the net housing costs of the two options.
Median Sales Price Appreciation by Neighborhood
In San Francisco, some of the most affluent neighborhoods — such as the Pacific Heights-Marina district and the Noe, Eureka and Cole Valleys district — started their recoveries in the second half of 2011, well before virtually every place else in the city or country. When 2012 began, prices in these districts soared, while other areas played catch up. In 2013, that dynamic flipped: Appreciation rates in comparatively less expensive neighborhoods surged, while slowing in the most affluent areas.
A big part of this is simple affordability: Priced out in one neighborhood (or city), buyers focused on others, similar in ambiance but less costly. Home prices there looked so good in comparison that buyers were willing to bid them up. The huge decline of distressed sales in areas severely affected, such as in Bayview, has had an outsized effect on median sales prices there. Continuing gentrification, as in the Mission, and increasing “luxury” condo construction in less affluent areas have also played parts in this trend. It’s not as if demand plunged in the Pacific Heights-Marina district (or Noe Valley, for that matter). Quite the contrary: its 9% appreciation rate in 2013 translated into the city’s largest median price increase in dollar terms ($300,000). However, in the previous year, this district saw year over year median price appreciation of 25%.
Note that median price appreciation does not perfectly correlate to changes in home values, as it can be affected by a variety of market factors. It does give an approximate sense of market trends.
Percentage of Sales Price above Asking Price
As the market turnaround began in earnest in early 2012, two trends emerged: 1) increasing percentages of sales without any previous reductions in list price, hitting a whopping 90% of sales in May 2013, and 2) sales prices exceeding asking prices by escalating percentages, hitting an incredible average of 9% over list price in June of last year. Both of these highs reflect the ferocious spring 2013 market frenzy. Since then, these statistics dropped, stabilized and have now dropped some more. One shouldn’t make too much of a month or two of data, and it must be noted that the January numbers — 81% of sales occurred before any price reductions, at an average of about 4% over list price — would signify a red hot market at any other place or time, but they are significant drops from those predominating last year. We won’t know whether it’s a seasonal blip or the beginning of a major shift until the spring selling season gets underway.
Case-Shiller Home Price Index: 2012-2013 Appreciation
This chart is updated through November 2013, reflecting the last Index report published by Case-Shiller: It illustrates approximate Bay Area home price appreciation for higher priced homes, which San Francisco’s generally are, over the past 2 years. Spring 2012 and especially spring 2013 saw very large upswings in values, but prices then stabilized and basically plateaued since last summer began. Will this spring bring another increase in prices or has the market exhausted its appreciation momentum for now? We shall soon know. Note that chart numbers refer to January 2000 values designated as 100: 181 signifies home values 81% above that of January 2000.
This link goes to a chart looking at the past 18 years of home price appreciation, illustrating longer term cycles in real estate:
Case-Shiller Index since 1996
Inventory of Homes for Sale
One thing that has not changed in the market is the very low level of homes available to purchase. Historically, inventory usually surges in spring, declines somewhat during the summer, jumps again in autumn (September is typically the single month with the greatest number of new listings) and then plunges dramatically for the holidays and mid-winter. Agents and buyers are desperately hoping for a major surge of new inventory in the next couple months. Generally speaking, low inventory puts upward pressure on prices when buyer demand is healthy.This link looks at Months Supply of Inventory. While still very low — anything under 3 months is typically considered a Sellers’ market — it is climbing. The lower the MSI, the stronger buyer demand is as compared to the supply of homes available to buy, and the more likely prices are to rise.
Months Supply of Inventory
Updated Neighborhood Price Charts
We’ve updated long-term market value charts for several dozen San Francisco neighborhoods. This one is for Bernal Heights, a neighborhood which experienced feverish appreciation in 2013. This link below goes to the webpage containing all these neighborhood charts. Let us know if you can’t easily find one for the neighborhood or property type you’re most interested in.
SF Neighborhood Home Values
Mortgage Interest Rates
Confounding “expert” predictions once again, interest rates in the first week of February fell to their lowest point in almost 3 months, though they were still about 1 percentage point above the historic lows of one year ago. Interest rates play an enormous role in homeownership affordability, and the incredibly low rates of recent years have been a significant factor in the market recovery. They are expected to rise, but then they were expected to jump to 6% or more in 2010 and fell dramatically instead. Where they will go this year is one of the wild cards of the real estate market.
Unusual Spike in Condo Median Sales Price
January is not a high-sales quantity month as its sales mostly reflect accepted-offer activity in December, the slowest month of the year, and monthly median price data is not that reliable as it can fluctuate without great meaningfulness. However, an odd data point came up for median sales prices in January: The median price for SF houses dropped an insignificant amount, from $938,000 in the 4th quarter of 2013 to $928,000 in January (down from a brief spike to $976,000 in the 2nd quarter). However, the median sales price for SF condos made a very big leap from $835,000 in the 4th quarter to $927,500 in January, the highest monthly condo median price ever. Of the 144 January condo sales reported to MLS as of 2/8/14, 45 sold for $1,200,000 or more. This is an unusually high percentage of high-end condo sales, especially for a January — January 2013 had 19 such transactions — and is probably just one of the anomalies we sometimes see in monthly sales data. (We much prefer longer-term data.) We’ll have to watch what happens in future months.
One can never take for granted exactly what is going to happen next in the San Francisco real estate market.
Updated SoMa Charts
Snapshot: Russian, Nob & Telegraph Hills & North Beach
Earlier this week, San Francisco was named the third least affordable major metropolitan area, behind only Vancouver and Hong Kong, according the globe Annual Demographia Housing Affordability Survey of 360 housing markets worldwide. Our market snapshot of Russian, Nob & Telegraph Hills and North Beach support that with the median sales price for a condo in Russian Hill at $1,300,000 in 2013 and average sales price at $1,612,000. Take a look:
Charts: Lake Street, Richmond, Sunset-Parkside, GG Heights
California Median Home Prices
No matter your price point, California really does have it all.
Source: Parascope Social
New Case-Shiller Index Released
The November Case-Shiller Index report was released this week. Below are three looks at what has happened in Bay Area “high-tier-priced” houses (currently delineated as those selling for more than $801,000) since 2013 began, over the past 2 years – as the recovery really began in early 2012 – and since 1996, to show market cycles. Right now, ignoring small fluctuations up and down, home prices are basically continuing on the plateau they reached after the huge spring surge in appreciation.
Case-Shiller measures a 5-county metro area, not just the city of San Francisco. The numbers used relate to a January 2000 value of 100; thus 181 = 81% home price appreciation over the past 14 years.
2012 – 2013:
1996 – 2013:
Market Snapshot: Pacific & Presidio Heights, Cow Hollow & The Marina
Here’s a look at the average sales price, dollar per square foot and median house sales price beginning in 1995. Last year we saw records highs in all three categories, take a look:
Scoping Out: Noe Valley
We aren’t sure if winter will ever arrive, but while the forecast calls for mid- 60′s and partly cloudy skies, it’s perfect weather for strolling through one of your favorite San Francisco neighborhoods. Whether you’re jones-ing for a pick-me-up from Philz Coffee, looking for that perfect dress at Ambiance or just want to grab lunch and take it to a park, Noe Valley is just the place to enjoy our “not-so-winter” winter.
So you think you can’t afford to move?
We hear this all of the time: “It will cost me more to move than to stay in my current home.” This is especially true for homeowners who have been in their homes for many years. Perhaps you bought your family home in Pacific Heights in 1985. You paid $700,000 for your four-bedroom, three-bath dream home with space for a basketball hoop and raised your children there. You love your house — the memories made there are priceless. But now you are 63 years old, your children are adults, and you are tired of dealing with roof gutters and yard maintenance and all the other work your house demands. You might be thinking, It’s time to enjoy my retirement.
Have you dreamed about downsizing to a shiny new condo in a luxury high-rise building or maybe a beautifully remodeled smaller house? Something turnkey, where you can lock the door and leave it safely behind to travel the world for a few months? If you read the real estate ads, you might be shocked by today’s high prices. Yes, that nice little condo, much easier to care for than your current large home, is now selling for $2 million. And in normal circumstances, the property tax basis for that condo is $2 million, significantly more than your current $700,000 basis from your purchase price 28 years ago. There is no way you want to pay more property taxes. So you think you can’t afford to move?
Let us share some good news with you, which will probably change your mind.
If you are one of these people, and you or your spouse is 55 or older, you can take advantage of Proposition 60. Prop 60 was passed in 1986 and allows homeowners, under very specific conditions, to transfer their property tax basis. This means you can still live in this wonderful city and continue to pay low taxes.
Prop 60 allows you to cash out of your large home in Pacific Heights, now worth $3 million or more, buy a home for the same or lesser value, and transfer your tax basis of $700,000 from your old home. The following are the basic guidelines, but go to the California State Board of Equalization web site for specific information (www.boe.ca.gov/lawguides/property/current/ptlg/rt/69-5.html).
• Both the original property and its replacement must be located in the same county except for the nine counties as of September 2013 that allow intercountry transfers. The nine counties that allow this under the related Proposition 90 are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Diego, San Mateo, Santa Clara, and Ventura. (This means that you can move either within San Francisco or to a home in one of these counties and preserve your tax basis.)
• As of the date of the transfer of the original property, the seller or spouse living with the seller must be at least 55 years old.
• The replacement dwelling must be of equal or lesser value than the original property.
• The replacement property must have been purchased or newly constructed within two years of the sale of the original property.
• The original property must be subject to reappraisal at its current fair market value as the result of its transfer (per the Revenue and Taxation code).
• Without exception, a claim for tax relief must be filed within three years of the date of purchasing the replacement property or the completion of the new construction.
This is a one-time allowable transfer, and only one replacement property is eligible. You can’t have two people living in the same home and have each be eligible for a replacement property, and it must be your primary residence. If a spouse has already taken advantage of this allowable transfer, you may not use it again.
The example above is based on our extraordinary real estate market in San Francisco. Of course, you can transfer your basis very easily in San Francisco, but you can also consider one of the other nine counties that allow the transfer and buy into a much lower-cost real estate market.
If you want to stay in San Francisco, there are many reasons to do so. The city is vibrant and we think keeps you young, if not young at heart. There are also several neighborhoods that are up and coming and still have more affordability. A few of our favorites: West Portal for its friendly atmosphere and walkability. It truly feels like a version of Mayberry, where you know your neighbors and shopkeepers. Golden Gate Heights has fantastic views and has easy access to dining on Irving Street and close proximity to West Portal. The Inner Sunset and Sunset offer some very good value as well. Bernal Heights is red hot right now and has a small-town feel in the midst of the larger cosmopolitan city.
For walkability and easy access to downtown, we love the North Waterfront. Stroll to the Embarcadero, Ferry Building, or center of the City. Leave the hills behind. South Beach and the Mission Bay area are home to several luxury developments and great weather. Maybe it’s time to explore other neighborhoods; you’re New Year’s resolution might include a move.
This information is provided as a brief overview. If you are considering this tax advantage, please consult a professional tax specialist. If the new property is even $1 over value of your current home, you will not be able to transfer the basis.