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April 9, 2010

Increasing Demand, Decreasing Supply, Stable Prices

April 9, 2010

Increasing Demand, Decreasing Supply, Stable Prices

April 2010 Update

As shown in the updated charts below, buyer demand in the San Francisco home market continues to strengthen, while supply (as measured by months’ supply of inventory) continues to tighten. Median prices remain surprisingly stable, jogging up and down in small increments over the past 4-5 quarters, but always staying within a 3% range.

The spring season is typically an active sales period, though some pundits believe buyers have been rushing in recently because 1) the Federal Homebuyer Tax Credit is due to expire this month, and 2) an expectation that mortgage rates will rise now that the Fed has just ended its mortgage bond buying program. However, because of income and purchase price limits, and the higher cost of housing here, the Fed tax credit has never impacted SF like it has other areas of the country, and now a new California tax credit has been announced with no income or price limits. Interest rates have started to tick up a little, but remain very low by historic standards.

New $10,000 California Homebuyer Tax Credit
Federal Tax Credit Due to Expire on April 30

Under a new California law, a homebuyer may receive up to $10,000 in tax credits as either a first-time homebuyer or as a buyer of a brand new home. With the Federal tax credit due to expire soon, there is a brief window of opportunity in April to qualify for up to $18,000 in combined federal and state tax credits. This would require an accepted contract to purchase before April 30 with close of escrow occurring May 1 to June 30. Here is a link to a chart of details and eligibility criteria for both programs. This should be reviewed with your accountant.

Homebuyer’s Tax Credit Chart

Median price is that price at which half the sales were higher and half were lower — it can be affected by changes in value, or by changes in buying trends, or by unusual market events. Months’ Supply of Inventory (MSI) is that number of months it would take to sell existing inventory at the current rate of sale — the higher the MSI, the weaker the demand. Average Days on Market (DOM) are the average number of days it takes for a listing to accept an offer — the lower the days on market, the faster homes are selling.

Statistical parameters are generalities which may fluctuate up and down, sometimes for no discernible reason. All data is from sources deemed to be reliable, but may contain errors and omissions, and is not guaranteed. Sales not reported to MLS, such as many new-development condo sales, are not included in these statistics.

SF Homes Accepting Offers As the spring selling season began in earnest, the number of listings accepting offers increased to their highest level in well over 2 years.

Paragon Real Estate Group
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SF Median House Sale Price The median house sale price, at $745,000, is about 20% below its 2007 high of $926,000, but what is most interesting is how incredibly stable the median has remained over the past 4 quarters — ever since the market recovery began last spring. After its big drop subsequent to the 9/08 market meltdown, despite jogging up or down a little bit each quarter, it has stayed within 2.6% of $750,000 for the past year.

Paragon Real Estate Group
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Months’ Supply of Inventory & Avg Days on Market This chart pertains to SF houses. Months’ Supply of Inventory (MSI) is delineated by the blue bars; average Days on Market (DOM) by the dark blue line. The lower these two indicators are, the stronger the market is. At an MSI of 2.7 months and DOM of 35 days, both these statistics for San Francisco houses are very low — at their lowest in over 2 years. Typically, this situation would be considered a “sellers’ market” and would be exerting upward pressure on median sales prices – which, as shown on the charts enclosed, for the most part, we have not yet seen.

Paragon Real Estate Group
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New Home Listings Coming on Market Typical for spring, the number of new home listings has been increasing. However, as delineated in the other charts, it is not keeping up with demand — since Months’ Supply of Inventory continues to drop.

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SF Median Condo Sales Price As also seen with houses, the current median condo sales price of $649,000 is about 20% below its high of $808,000 2 years ago, but again it is the stability of the median price which stands out. It has remained within 2.5% of $665,000 for the past 5 quarters. Statistically speaking, this is virtually no change at all.

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Percentage of Listings with Accepted Offers Another indicator of a market with strengthening demand, the percentage of listings for sale that accepted offers in March was at its highest in over 2 years.

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Bank-Owned Home Sales & Short Sales The numbers of these “distressed” sales and their percentage of total home sales has remained relatively stable over the past year, despite ongoing fears of a tsunami of such properties flooding the market. The city continues to be much less affected by foreclosures and “underwater” sales than other areas of the state.

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Avg Days on Market: Homes Accepting Offers Average Days on Market (DOM) for all home sales, at 42 days, are at their lowest in over 2 years. The lower the DOM, the faster homes are selling. The hottest market segment in the city is that for houses, so its Days on Market are lowest, at 35 days. Days on Market in March for both condos and TICs were 49 days, and for 2-4 unit buildings, they were 45 days. For every property type, this statistic has shown a very large drop.

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SF Luxury Homes Accepting Offers Defined as home sales at $1,500,000 and above, the luxury home market in the city is definitely strengthening. The number of such homes accepting offers was at their highest monthly total in almost 2 years, though still 31% below the market peak in May 2008.

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SF Luxury Homes: MSI & Avg DOM The blue bars delineate MSI and the dark blue line show the trend in Days on Market for luxury home sales. At 3.7 months of inventory and 45 days on market, both parameters are at their lowest in 2 years. The drop in days on market is particularly deep, indicating that new listings are suddenly selling much more quickly.

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2-4 Unit Buildings Accepting Offers Sales of 2-4 unit buildings have been negatively affected over the past few years by changes in tenant eviction laws, financing conditions and ordinances governing the condo-creating process. This has resulted in increasingly lower dollar per square foot prices when compared to houses and condos. Perhaps it was an anomalous spike in March or perhaps the value equation has reached a tipping point, but 2-4 unit buildings accepting offers soared to by far their highest level in well over 2 years.

Paragon Real Estate Group
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TICs: MSI & Avg DOM The number of TIC listings accepting offers in March, at 51, was at its highest since summer 2008, and both the MSI, at 3.5 months (blue bars), and the Days on Market, at 49 days (dark blue line), were at their lowest in over 2 years. However, due to difficult financing conditions, a fair number of TIC listings accepting offers end up coming back on the market (which distorts MSI statistics), and in 21 out of the last 24 months, more TIC listings have expired without selling than have sold. Still, the signs indicate that a market rebound may be underway in this market segment.

Paragon Real Estate Group
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Sales Price to Original List Price by DOM Unsurprisingly, the longer a listing stays on the market, the lower the percentage of sales price to original list price achieved. Those homes that sell very quickly (about 36% of sales) often go for over asking in multiple-offer situations. As time on market increases, so does the discount to original list price. And in the first quarter of 2010, for every 20 listings that accepted offers, 9 listings expired without selling (typically due to being perceived as overpriced).

Paragon Real Estate Group
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