Our Market in Microcosm ...

... if anything about a $1,100,000+ 2 bedroom, 2 bath single family home less than 1,000 sq. ft. can be referred to as small.

Four years ago this modest home on Potrero Hill (south slope) sold for $29,000 less than its original asking price.  It took almost 50 days to go into contract during which the asking price was reduced by $20,000.   It took another 50 days to close.

The same house (with a some mostly cosmetic improvements) has just sold for $420,000 more than it's previous sales price.  This time the property went into contract in less than two weeks after it hit the market and closed 40 days later.

I'm not identifying the specific house since that's not the point of this post.  (If anyone wants to know the specifics, feel free to contact me directly).  This particular transaction is of interest since the property is in essentially the same condition it was when it last sold.  That works out to be a 14%+ increase in value per year during the four years the the house was owned by the seller.

DJIA graph 2010 through 2014

That's about the same annual increase as the Dow-Jones Industrial stock overage has achieved over the same period.







Obviously, not every home in San Francisco has seen such increases in value.  There are a lot of variables that can affect pricing.  Nevertheless, our monthly and quarterly statistics tracking suggests that there will be more homes selling for over $1,000,000 in San Francisco than under a million by the end of the year!

Inventory -- Up/Down

Lack of inventory has been the bane of most real estate buyers and their agents for some time now.  There were three interesting items on this topic today:

• The Mark Company, which handles the marketing for many new construction condo buildings, reported today that new construction condo inventory was up 63% compared to last year.  Their report indicates 401 units available.  The accompanying graph also suggests that there was a peak in inventory about 10 months ago at approximately the same levels as today.  This was followed by several months of reduced inventory with an upturn in just the last two or three months.

They also report that pricing has increased 13% since the same time last year.

• Our own bi-weekly reports of new listings shows that since the first of the year, listings have held relatively steady in the range of approx. 250-350:

• Our regular monthly sales report shows a significant reduction in inventory compared to the same period last year for all five configurations of condos and single family homes we track as well as 2-4 unit properties:

• Socketsite had an item yesterday suggesting that inventory has been steadily climbing but giving no source for their numbers.

Drones for Real Estate Photography and Video

I have a particular interest in (besides real estate) aviation.  I got the bug early as a child when my busy pilot uncle took me flying in one of his awesome float equipped planes as part of his bush flying business in northern Quebec.

Fast forward to day, where using drones (unmanned flying vehicles - UAVs) has become a popular hobby and, inevitably, made its way into the commerce of real estate.

Photos and videos taken from drones can provide a unique perspective on individual properties and their neighborhoods.  Since almost every prospective real estate buyer starts their search on-line these photos and videos can help make a property stand out from its competition.

The current problem is that the FAA allows the use of these devices only for hobby or recreational use -- not for commerce.  Congress has mandated the FAA to come up with rules for the commercial use of these devices and the FAA bureaucracy is moving in that direction but, at the moment, these devices may not be used in the marketing of real estate.  

However, even while the FAA has subpoenaed information from some real estate agents regarding their use of drones, the government has done very little actual enforcement.

One way or another, expect to see more and more of these devices buzzing around properties about to come on the market -- and not just "high end" properties.  Just like earlier technologies such as virtual tours that migrated from high end to most properties, UAV photos and videos will make their presence felt in a wide range of real estate.

For further reading try these articles:

Mashable

Forbes

San Francisco Chronicle

The Seller's Market Continues

Apologies for being negligent about updating the blog.   It certainly doesn't mean there haven't been interesting things happening in the San Francisco real estate market.

We continue to publish our monthly reports of sales and inventory.  There are a couple of things worth highlighting in the latest version of the reports.

The New Listing Market Watch report is the closest thing we have to a leading indicator.  It measures the number of new listings of single family homes and condos during the previous two weeks and what percentage of them go into contract within that same period.  As you can see on the graph, the market continues strong with 15% of single family home listings going into contract within two weeks of listing and more than 28% of condos in contract within two weeks.  Click here for the full report.


We have also published the Quarterly Report and, of interest there, is the comparison between the just completed 2nd quarter of this year compared to the same quarter a year ago.  In every category we survey (for example, 1 bedroom / 1 bath condos) the number of units sold is down compared to the same quarter last year and the average sales price is up.  Here's an extract to make the point:

For the full report, click here.

Weather

Explain to me again why we don't have air conditioning in San Francisco:

Oh, that's right:

New Listing Activity

New listings of single family homes took an uptick over the past two weeks with condos holding steady.

The percentage of them that went into contract within that same time period is also up, reversing a downward trend we had seen during the last month.

You can see the full report here.

Only four of the new single family home listings (less than 3%) has posted a price decrease along with 15 of the condos (8.4%).

We're talking about listings in the San Francisco MLS.  As such they do not include private sales that do not involve a broker representing the seller, nor do they include some/most new construction condos since most developers list only a handful of examples of their units.  This allows them to keep close control over the speed at which units are seller and sales prices.

Warren Buffet / Berkshire Hathaway's Real Estate Brokerage

I noticed two articles recently about the real estate brokerage business including quotes from Ron Peltier, chief executive of HomeServices America, owned by Berkshire Hathaway:

http://www.foxbusiness.com/markets/2014/05/03/berkshire-housing-executive-laments-dearth-first-time-buyers/

The second is a more general article in conjunction with the Berkshire Hathaway annual shareholders meeting:

http://www.forbes.com/sites/robertlenzner/2014/05/03/warren-buffett-has-plans-to-build-up-berkshire-not-break-it-up/

Some interesting quotes from the articles:

"The single most-challenged sector of the market is the first-time home buyer," he said. "Historically, they make up 40 percent of the existing home market. In the last 18 months to two years, it has been 27 to 28 percent. Twelve percent of the market has been missing. It's troubling."

----

HomeServices is the second-largest U.S. independent real estate brokerage, and part of a Berkshire unit that was on Wednesday rechristened Berkshire Hathaway Energy.

----

U.S. home resales in March fell to a 1-1/2 year low, dropping to an annual rate of 4.59 million units according to the National Association of Realtors.

[In our market there was a drop in the number of sales for March this year compared to last year, 439 vs. 489.  That's the lowest for March since 2009.  For the first quarter of 2014, the number of sales was 1090, just slightly lower than the first quarter of the previous two years.]

----

In the first quarter, Berkshire reported a $24 million pre-tax loss from "real estate brokerage and other" items within Berkshire Hathaway Energy, as spending rose on employment and marketing. Revenue rose 21 percent to $405 million.

Some of that extra marketing was to rebrand local brokerages as Berkshire Hathaway HomeServices. That puts the Berkshire name on "For Sale" signs, and Peltier said it is helping business.

"The brand is golden," he said. "We have received an incredible number of comments from every market we've launched in that the values associated with the Berkshire brand translate into values that consumers look for: integrity, honesty, trust, value."

----

As he sometimes does, Warren Buffett  likes to welcome the 40,000 visitors to the Berkshire Hathaway annual meeting today with a last minute deal, this time a $2.8 billion acquisition of an electric transmission company in Alberta, Canada, that will further build out the holdings of Berkshire Hathaway Energy.   

School Scores Affecting Buyer Choices?

There's a tv commercial still making the rounds (it's almost a year old) where the husband suggests to his wife that they not consider a home where the school rating is too low.  There are any number of web sites which carry home listings for sale that also provide information from various school rating sources.

Ironically, in San Francisco, this seems to be less of a consideration since proximity to a school is only one of several criteria that determines how students are assigned to schools.  Ironic, because one of the most often stated reasons for parents with young children leaving (or avoiding) San Francisco is because of the arcane school selection process.  I've seen this countless times both from parents moving to the Bay area for work reasons as well as parents currently living in the city who make plans to move to a nearby county for "better" schools or more certainty in the school assignment process.

There is some suggestion that on-line school ratings somehow undermine fair housing laws.

Inman news has a four-part series exploring this issue.  Here's a link to the third in the series.

As with the wide array of statistics available to prospective buyers including recent sales prices, estimated value, crime rates and even investment potential (yes, there's a web site that attempts generate a single number to compare investment potential), it's important for the consumer (buyer) to have an understanding of the underlying meaning.  There's a great example of this in an article written by Heather Knight who was the San Francisco Chronicle housing writer at the time -- San Carlos has four elementary schools all of which rate well above the state averages yet some buyers shun the area around the lowest scoring school.  In addition, if you delve down into the details of the score you'll find that the high performance in all four schools is coming from a particular racial group with other racial groups well behind their state-wide peers.

New Listing Activity

New listings of single family homes and condos over the past two week held steady compared to previous two-week periods.

However, the percentage of them that went into contract within that same time period has dropped -- and in the case of single family homes, it hasn't been this low since last September.

You can see the full report here.

It's the second report in a row where the percentage of homes going into contract within two week of initial listing has dropped.

Another interesting tidbit in the numbers:  9.4% of the new condo listings also posted a price reduction within two weeks of listing.  That's the highest percentage of two-week price reductions of condos we've seen since since the Christmas holidays.

We're talking about listings in the San Francisco MLS.  As such they do not include private sales that do not involve a broker representing the seller, nor do they include some/most new construction condos since most developers list only a handful of examples of their units.  This allows them to keep close control over the speed at which units are seller and sales prices.

Hypocrisy / Deceptive Advertising

Everyone in the real estate business is always looking for an edge -- something that will differentiate you from the competition.

We've seen brokerages try all sorts of things from commission discounts with reduced service, flashy web sites, focus on high-end properties, free estimates, balloons on for-sale signs, spot advertising on web sites -- it's all out there.

At the end of the day, our business relies mostly on personal relationships.  Successful transactions for both sellers and buyers depend on the trust developed between the principal and their agent.

Key to developing that trust is for each party to do what they say they will do, when they say they will do it.

So how do you trust a brokerage that prominently promises on its web site:

What Makes Us Better? We Will Not Cheat On You.  Could you imagine going to court and having the same lawyer represent you and the other side? How silly would that be? At XXXXXX, our agents will only represent either a buyer or a seller in an agreement, never both.

Yet, in the last six months this brokerage has seven transactions recorded in the MLS, two of which they represented both buyer and seller!

Let's be clear.  In California there's nothing illegal about what's called "dual agency" in which the same brokerage represents both buyer and seller as long as it's disclosed to all parties and agreed to and I have no reason to think this brokerage did not obtain the necessary consent from both buyer and seller in these transaction to act as a dual agent.

But if you're going to promise in your advertising that you will never represent both sides in the same transaction (and by inference suggest that your level of integrity is higher than your competition) and then turn around and do exactly what you promised not to do, what does that say about how you're going to handle your responsibilities in a real estate transaction.

Most buyers and seller don't have the ability to check claims like this since this information isn't readily available to the public. Unfortunately, it's just another due diligence step for buyers and sellers when selecting an agent.

Is San Francisco real estate a good investment ... ?

... even at today's prices?  One of our colleagues has a client who asked this question after their offer was not the winning bid.  (This was the third property property where they lost out to higher offers).

This graphic will let you know how it has worked out over the past few years:

If you expect to hold on to the property for five years our recent history suggests you should be able to ride out even the worst of downturns.

Spring is Finally Here, part 2

Some pictures of our next door neighbor's apple tree in full bloom.

Click here for the short slide show.

Market Competition

Our biweekly report on new listings gives us a look at the current market activity.  It shows a lower number of new listings of single family homes but an increase in condo listings compared to two weeks ago.  But the number of listings is well below where it was last summer (when we first started tracking this particular metric).

Click to enlarge.

The percentage of those new listings that went into contract within that two week period has dropped slightly over the past two weeks but still showed almost 17% of single family homes and almost 20% of condos in contract within two weeks.  

Click to enlarge.

These numbers continue to confirm the competition buyers are running into when making offers and which results in significant overbidding and final selling prices averaging 10% over asking.

Click here for the complete report.

Annual Median Sales Price Continues to Zoom Up

Most of our reports and statistics focus on specific configurations of single family homes and condos.  For buyers and sellers that tends to provide a more realistic picture of the slide of the market their property or prospective property lies.

On the other hand it's useful to step back occasionally and look at the whole picture.  Here's what the annual median sales price for single family homes and condos/TICs/co-ops looks like since 2000:

(Click to enlarge)

The blue line shows the annual median sales price trend.  The median sales price in 2011 was 6% lower than the previous year.  In 2012 the median sales price was more than 12% above 2011 and that trend continued in 2013 when the median sales price increased almost 16% over the prior year.

So far this year (first two months) the median sales price has been almost 12% over 2013.  Prior to the economic downturn the highest annual median sales price was in 2007 which we have now far surpassed.

At the same time, inventory has struggled to keep pace.

(Keep in mind these numbers are derived from listings/sales reported in the San Francisco Association of Realtors MLS system so they do not include private sales and sales of many/most new construction condos).

Spring is Officially Here

For us, there's no better confirmation of the arrival of spring (and the spring market) than the blooming of our wisteria vines in the back yard:

More photos at:

https://plus.google.com/photos/104904464641332211240/albums/5991508865093450721

Market Heating Up, Again?

Our every-two-week look at how many new listings have gone into contract within 14 days of listing has just been updated:

After a big spike before Thanksgiving and then the usual lull during the holidays, we're back at a level where 20% of new listings of single family homes are going into contract within two weeks.  Condos are moving quicker with 25% in contract within two weeks.

Annual Sales Volume

There was a misleading headline in one of the local real estate blogs recently suggesting that "Fewer San Francisco Homes Sold In 2013 Versus 2012".  But the annual numbers reported in that post actually referred the full bay area, not just San Francisco.  In San Francisco, despite tight inventory pretty much all year long, the number of residential sales in San Francisco was actually up by 2.7% in 2013 compared to 2012 (according to the MLS).

The post went on to say that December sales were down compared to the previous year (that also shows up in the MLS numbers) but it also said that the median sales price was down which is not supported by MLS numbers which show an increase of 11% compared to December 2012 median sales price ($849,444 compared to $765,500).

The actual differences of the number of properties sold are fairly trivial and it's important to note that the MLS numbers represent mostly resale properties and don't include most new construction sales.  Nevertheless, the implication of the post was that sales and prices are slowing down in San Francisco which is not what the local numbers actually show.

Pulse of the Market

Our bi-weekly look at early trends in the San Francisco real estate market:

Of course this covers the holiday period from just before Christmas so no one is surprised that the number of new listings is down significantly.  But this also shows there is less competition for the existing listings.

Total number of new listings for single family homes was down as was the percentage of those listings that went into contract within two weeks.  New condo listings was also down was essentially flat as was the percentage that went into contract within two weeks.