Have SF Home Prices Plateaud?


Are San Francisco Home Prices at a Plateau?

Is the San Francisco homes market on the cusp of a change and starting to experience a lessening in its ferocious, red-hot heat? Are buyers finally pushing back at the relentless increase in prices we have been experiencing in the city?

Monthly median prices are often subject to fluctuation without great meaningfulness (which is why we prefer quarterly or longer periods), but after the big, definitive jump early in the year, the median sales price has been within a 4-5% spread (not a huge spread for monthly home prices) for 5 months, Including a drop from an April-May spike. The idea of a plateau contradicts the recent Case-Shiller Index reports of continuing increases, but 1) the C-S Index is about 3-5 months behind current realities, 2) San Francisco is only a tiny part of the 5-county SF Metro Area Index and, 3) the city itself has strongly outperformed C-S Index since the turnaround began – having appreciated so much faster than other places, we may be due a flattening of appreciation before other areas. And, of course, this also may be true for different SF neighborhoods which began their rebounds at different times and have accelerated at different speeds – some may be plateauing while others are still appreciating. Demand, as seen in the below charts, remains very strong and supply remains very low, so we're not talking about a bubble popping, but simply, possibly, a change in degree of a very hot market. It may be that the recent increase in mortgage interest rates may be having a cooling effect as well, though conforming loan rates are still extremely low by historical measures (see chart below), and jumbo loan rates -- which are common in our market -- are up only about 10% from 6 months ago. Anecdotally, there is increased talk in the Realtor community about a change in the market, i.e. not everything flying off the shelf at 20% over list price, that some aggressively priced listings are sitting on the market without offers -- but anecdotal information is, by its nature, difficult to quantify. And there are also contrary anecdotal stories that the market is still roaring along. It may be that buyers are now selectively pushing back at those listings priced at ever higher values or priced comparably to the very last sale which went enormously over asking price in multiple-offer bidding, while still jumping on homes they feel are more reasonably priced.  At this point, the idea of a possible plateau, temporary or not, is only speculation and the truth won’t be clear for a while – these things only become statistically clear in retrospect. Spring median prices sometimes spike and summer prices sometimes drop as some of the higher-end market checks out for the holidays. And median sales prices are not perfect correlations of changes in market value, being affected by a number of other factors, including inventory available to buy and seasonality. Still, it’s certainly worth considering the possibility as we move into the end of summer and then the autumn selling season, that we may have reached a plateau or bumped into a ceiling of what buyers are willing to pay, thus transitioning into a somewhat different market from spring's overheated frenzy. If we are in a transition, the market will be schizophrenic for a while: some buyers acting one way, and another, growing group of buyers acting another. That would also make both the anecdotal and statistical data a bit schizophrenic until the change shook out and settled down. Summarizing the charts in this article:

  • The San Francisco Median Home Sales Price has leveled off, dropping somewhat from an April-May peak. (chart above)

Charts below:

  • Buyer demand is still extremely high as measured by Percentage of Listings Accepting Offers.
  • Inventory is still extremely low as measured by Months Supply of Inventory and Units for Sale.
  • The number of Expired & Withdrawn listings climbed in July and was about 19% higher than July of 2012 (though less than half the number of July 2011). The main reason why listings expire or are withdrawn from the market is that buyers have concluded they are priced too high.
  • The July Market Snapshot overview still indicates a very hot market by any reasonable measure. However, offers being negotiated now won't typically close escrow and show up in the sales statistics for 6 to 8 weeks. To a large degree in real estate, we are always looking in the rearview mirror.
  • Mortgage interest rates, while having risen relatively dramatically from spring's historic lows, are still extremely low by any other measure.

An uptick in expired and withdrawn listings could be an early indication of buyers walking away from listings they feel are just too highly priced.

Looking at the July snapshot showing that 87% of sales sold without a price reduction at an average of 7% over list price makes it clear the market is still very hot, even if it may be on the cusp on a transition to a somewhat less fevered state.