Case-Shiller Index results for January have recently been published with news of a continuing fall in home values in the United States and most of its metropolitan areas. According to Case-Shiller, home values in the San Francisco Metro Area (5 counties with wildly different markets) have continued to fall – the kicker being that C-S determined the total decline over the past 12 months to be a whopping 1.7%. (January sales reflect accepted-offer activity in November-December, so the data is already 3-5 months old.)

Even the most competent and experienced agent, concentrating on a single market area, seeing virtually every home available and sold, would be hard pressed to estimate the fair market value of any given house – what one reasonably knowledgeable, willing and able buyer would pay for it – within less than a 5% range of value. To those of us in the market day in and day out, prices have appeared relatively stable in San Francisco over the past 20 – 24 months (ever since the big decline of late 2008/ early 2009). It also appears that the employment situation is improving and that optimism regarding the general direction of the economy is growing, which if true, and if it continues, will play a large role in future market conditions.

It may be that home values are falling in the country, state and greater Bay Area – that is beyond our competence to assess – but in San Francisco, 2011 has seen a surge in home-buying demand, and a resultant change in the supply and demand equation. If it continues, it is unlikely to result in a further decline in values. Indeed, the recent changes in market dynamics would typically start to produce an upward pressure on prices. There are many reasons why we do not expect a “double dip” in San Francisco values, reasons which were explored in last month’s market update. Time will tell what the future holds – price declines, increases, stability – but in the meantime, here is a look at recent activity.

Statistics are generalities, subject to fluctuation due to a variety of reasons. Sales not reported to MLS are not included in this analysis. All information herein is derived from sources deemed reliable, but may contain errors and omissions, and is not warranted. All numbers should be considered approximate.

SF Homes Accepting Offers
The number of listings accepting offers in March dramatically accelerated and was comparable to the activity in April 2010, when buyers rushed to take advantage of the double US and CA home-buying tax credits. And if inventory was higher, the number of accepted offers would almost certainly have been higher as well. Even if we adjust March’s figure down by 5-6% to reflect deals that will fall out of escrow in future weeks, it was still the second strongest month in terms of listings going into contract in well over 2 years – with lower inventory, no tax credits and a very large number of rainy days.

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Percentage of SF Listings Accepting Offers (by Month)
Over a 2-year period: high buyer demand plus relatively low inventory gave March a very high percentage of home listings accepting offers. March’s figure may be adjusted down by 3 – 4 percentage points to compensate for deals that will fall through in coming weeks, but it would still remain among the highest percentages of recent years.

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Percentage of SF Listings Accepting Offers (by Quarter)
Over a 3-year period: The first quarter of 2011 achieved the highest percentage of home listings accepting offers in 3 years, exceeding even spring 2008, when the market in many of SF’s neighborhoods was still peaking.

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SF Homes for Sale
Though beginning to climb, the inventory of homes for sale in the city remains relatively low, especially as compared to demand. We will see if early spring sees the typical surge in new listings. If it does, it will probably feed a further increase in sales.

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Months Supply of Inventory (MSI)
MSI measures how long it would take to sell the current inventory of homes for sale at current rates of market activity. The lower the MSI: the higher the demand and the stronger the market. March 2011 saw the lowest MSI in well over 2 years. For houses, the strongest market segment, the MSI was a very low 2.2 months; for condos, 2.4 months, for TICs and 2-4 unit buildings, 4 months and 3.9 months respectively. For distress home sales (bank-owned properties and short sales), the MSI was an incredibly low 1.8 months (but these deals have a high fall-through rate). An MSI under 3 months would typically be considered a “sellers’ market.”

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Average Days on Market (DOM)
Average days-on-market measures the number of days between going on market and acceptance of offer (for those listings that accept offers). It is a blend of those homes that sell relatively quickly (actually the majority of sales) and those that go through multiple price reductions to ultimately sell after months on the market (which raises the average significantly). Average DOM in March was as low as it has been for years.

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SF Home Sales
The number of sales usually falls dramatically in January and February, reflecting the holiday season slow-down in listing and buyer activity. (Sales are 4-8 weeks behind accepted-offer activity.) March began to reflect the acceleration in the market that began in mid January.

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Median Sales Price for SF HOUSES
January and February usually show a big drop in median price, again reflecting the changed dynamics one sees during the holiday season (the higher end of the market checks out and distress sales increase as a percentage of sales due to ordinary sellers pulling their homes off the market). In March, there was an increase in the median sales price of SF houses to $768,000 – higher than the average median of $734,000 over the past 13 months – reflecting offers accepted in mid-January and later. If we strip out distress sales, March’s median house sales price rises to $840,000. Remember: monthly fluctuations in median price are generally meaningless – until one sees an established trend up or down over an extended period of time.

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Average Dollar per Square Foot for Condos Sold
Jogging up and down over the past 2 years, but reflecting a basic stability. March 2011 increased over the previous 3 months and at $611/sqft was a tad over the average of $599/sqft for the past 25 months. The median condo sales price in March was $635,000, which is a mix of the median price for distress condo sales ($390,000) and the median price for regular condo sales ($725,000). Again, monthly fluctuations are generally meaningless until reflected in an established trend over an extended period of time.

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SF Luxury Homes Accepting Offers
The luxury home market, defined in this chart as homes $1,500,000 and above, also accelerated in February and March. The months’ supply of inventory for luxury homes was a very low 2.7 months in March.

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SF Distress Home Sales
March saw an increase in the number of distress homes – bank-owned properties and short sales – to its highest level ever, adding up to about 20% of total sales. Distress sales often take much, much longer to close – and indeed, probably about 25 – 30% of accepted offers on distress home listings fall out of escrow and never close at all due to their difficulties – so a fair number of these sales probably went into escrow in late 2010. Though distress sales now occur everywhere in the city, they continue to be clustered in the less affluent neighborhoods and the lower price ranges. So far, they have not affected the market dynamics of many of the more affluent areas of the city. Of the 94 distress sales in March, 39 were houses and 49 were condos, with the remainder being 2-4 unit buildings. San Francisco still has a much lower rate of foreclosures and distress sales than California or the greater Bay Area.

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Distress Home Listings Accepting Offers
The deal fall-through rate is much higher for distress home transactions, so the number for March – a very high 150 units – will certainly decline over the coming weeks, but March still showed a large acceleration of distress home deals going into contract. Even more interesting is that the median LIST price of distress homes accepting offers fell dramatically in March to $389,000 – a huge drop from any of the last 24 months (18% below February’s) – while the median list price for non-distress homes ticked UP to its second highest point in 10 months. The SF markets for distress and non-distress homes seem to be going in different directions, an unusual disconnect – and it may simply be a temporary anomaly. In any case, March’s surge in distress home listings going into contract appears to have been powered by very, very low list prices.

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Median Sales Price: Distress vs. Non-Distress Listings
The hash-marked bars show the median price of distress home sales, and the solid bars, the median price of regular home sales. Not to overstate it, but In some ways these are 2 different markets with a separate group of buyers willing to deal with the aggravation, condition, and to some degree, location, of distress home sales in order to get a deal. Interestingly, there has been a general trend downward in the median price for distress home sales recently – $450,000 in March – and a mild trend upward in the median price for non-distress homes ($771,000 in March). Not enough to make a concrete determination of trends yet. Distress home sales play a significant role in pulling down the overall median sales price (for ALL sales), and yet in many areas of the city, typically the more affluent neighborhoods, distress sales are not at this time a significant percentage of transactions.

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Mortgage Rates
In this 3-year chart from Bankrate.com, one sees the increase from the historic lows of last autumn, however rates are still very low as compared to any year prior to 2009.

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