SOMA/South Beach Market Update

Paragon Real Estate Group
Paragon Real Estate Group
San Francisco Real Estate Trends for the South of Market (SoMa), South Beach, Mission Bay & Yerba Buena Condo Market

A Market Overview by the Paragon Real Estate Group

More condos sell in the South of Market (SoMa)-South Beach-Yerba Buena-Mission Bay neighborhoods than anyplace else in the city. Of course, this is where by far the greatest number of new condos have been built since the 1990's. The market here has been heating up very rapidly, especially as the number of brand new condos on the market has been rapidly declining. This is also one of the areas where high-tech buyers are concentrating in the city.

Though in this analysis, the four neighborhoods are generally grouped together, there can be significant differences in market dynamics and values between them. The only way to value a particular property is by performing a specific comparative market analysis based on its location, quality and amenities.

 

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Percentage of Listings Accepting Offers

This statistic is an excellent snapshot of supply and demand. In the 1st quarter of 2012 the percentage of listings accepting offers (going under contract) was at its highest point in memory, reflecting very strong buyer demand vs. a limited supply of condos for sale.

Condos for Sale

The inventory of condos listed for sale through MLS is far below that of previous years and is not currently adequate to meet market demand.

Months Supply of Inventory (MSI)

MSI is the lowest it has been here in years, if not ever. The lower the MSI, the stronger the demand as compared to the supply of homes for sale. MSI readings this low -- especially below 3 months -- would typically be considered indicative of a strong "Seller's Market," i.e. not enough inventory to satisfy buyer demand.

Sales Price to List Price Percentage, Days on Market, Price Reductions & Expired Listings

The market is divided into 3 groups: 1) those condos which are well priced, show well and are comprehensively marketed, which sell relatively quickly at very close to the asking price, 2) those condos that go through one or more price reductions, take much longer to sell, and close at significant discounts to the original list price, and 3) those that don't sell at all, typically due to being perceived as overpriced.

The Number of Listings Accepting Offers

The total number of condo listings in Greater SoMa accepting offers is at its highest in over 3 years.

Average Days on Market (DOM) for Non-Distress Sales

Average DOM - the time between going on market and accepting an offer -- for non-distress condo sales is at its lowest in over 2 years. (This chart shows the last 13 months.) DOM for distress sales is typically significantly longer than for non-distress sales.

Distress Condo Listings & Sales in the Greater SoMa Area

Because so many large developments were built here in the last 15 years, this area has more distress condo sales (bank-owned property sales and short sales) than any other area of the city. However, the number of distress listings and sales has been declining, and most of the distress condo sales are clustered generally in the lower price ranges (see median price chart) and often in specific troubled buildings.

Median Condo Sales Prices

For most of the past 3 years, the median price of non-distress condos in the greater South of Market area of San Francisco has generally been oscillating between $625,000 and $700,000, while the median price for distress condos (bank-owned and short sales) has been substantially lower. Median prices of condos of varied location, size, views and quality will naturally fluctuate up and down without being particularly meaningful as pertaining to changes in value -- until the trend is consistent over the long term, minimally 3 to 4 quarters. Note that values can fluctuate dramatically, by specific location and specific building, within the 4 neighborhoods covered by this analysis.

Median Sales Price Trends for 2-Bedroom Condos in Selected SF Neighborhoods

A comparison of median price trends for 2BR condos in 5 of the city's neighborhoods.

Average Dollar per Square Foot

The New-Development Condo Market

The vast majority of new-condo construction over the past 15 years has been in this greater area. The 2008 financial crisis caused new condo construction to crash in SF, which has led to large declines in new-condo listings and sales. Even though new construction plans appear to be now recovering in a relatively big way, this large reduction in existing new-condo inventory has significant ramifications for the supply and demand dynamic, and is a major factor in the heating up of the resale market.

Sales by Price Range

The greatest number of condo sales in these neighborhoods is in the $500,000 to $600,000 price range, however large numbers sell for far less (often times, distress sales) and many sell for far more. Indeed, some of the most expensive condos in the city, usually with staggering views and selling at dollar per square foot figures of $1000 and more, are found here. One condo in this area sold for $28 million last year.

Longer-Term Trends for South Beach & SoMa

The two following charts track average sales price and average dollar per square foot for non-distress condo sales by year since 1995, specifically for the South Beach and SoMa neighborhoods. Remember that average sales price is different from median sales price (which is used more often), but is just another way to look at long-term market trends. Distress sales (bank and short sales) were excluded from this analysis to provide an apples to apples comparison over time.

Condo Sales $1,000,000 & Above

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MEDIAN SALES PRICE is that price at which half the sales occur for more and half for less. It can be, and often is, affected by other factors besides 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 median sales price is NOT like the price for a share of stock, i.e. a definitive reflection of value and changes in value, and monthly fluctuations are generally meaningless. If market values are truly changing, the median 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 trends.

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 price, but like medians, averages can be affected by other factors besides changes in value. For example, averages may be distorted by a few sales that are abnormally high or low, especially when the number of sales is low.

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 figure, typically the stronger the buyer demand and the hotter the market.

MONTHS SUPPLY OF INVENTORY (MSI) reflects the number of months it would 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 7 months and above, a "Buyer's market."

DOLLAR PER SQUARE FOOT ($/sqft) is based upon the home's interior living space and does not include garages, unfinished attics and basements, rooms built without permit, lot size, or patios and decks -- though all these can still add value to a home. These figures are usually derived from appraisals or tax records, but are sometimes unreliable or unreported altogether. 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 title), and a TIC higher than a multi-unit building (quality of use). Everything 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 surprisingly 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, amenities, parking, views, lot size & outdoor space all affect $/sqft home values. Typically, the highest dollar per square foot figures in San Francisco are achieved by penthouse condos with utterly spectacular views in prestige buildings.

 

Median and average statistics are generalities subject to fluctuation due to a variety of reasons (besides changes in value): how they apply to any specific property is unknown. Averages may be distorted by one or two sales substantially higher or lower than the norm, especially when sample size is small. Sales not reported to MLS - such as many new-development condo sales -- are not included in this analysis (except in the specific chart on the SF new-development condo market). All figures should be considered approximate and are derived from sources deemed reliable, but may contain errors and omissions, and not warranted. We are happy to provide or direct you to the original data upon which each chart is based.
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