My December, 2015 Pulse was entitled Are We Getting Tired? The title referred to a sense that the market was getting a bit long in the tooth after four straight years of 10+% price appreciation.
Fast-forward six months to present day. Compared to the first six months of 2015, average prices for single-family homes are up just 0.5% and condominium prices are down 1.4%. Yes, the market appears to have lost some steam – average price-wise.
When I look at my 2015 numbers today, I now think that the market started losing steam in June 2015, not in December 2015.
Many agents will tell you that the market has “softened” and price reductions are no longer an infrequent occurrence. How does this square with so many properties going way over list price?
Transactions – the Other Number
It is worth looking at the number of transactions. To keep things simple, I will discuss only single-family homes and forget about condominiums. In 2008, as the recession was gathering steam, 2,161 single-family homes sold in the city. This compares to an average of 2,967 for the previous five years (2003 – 2007) and average annual sales of 2,457 in the five years after 2008 (2009 – 2013).
For 2016, I estimate that there will be a total of 2,125 sales, 7.0% fewer single-family transactions than in 2015, and a whopping 28% fewer than the average number of sales for the period 2003 – 2007.
For the 19 years between 1987 and 2005, transactions averaged 3,084. Now we are running closer to 2,100. Why such a drop? I can only speculate. Maybe it is because single-family owners are living longer, or maybe they are able to make their homes more senior-compatible so they can stay longer, or maybe their homes have appreciated so much that they don’t want to sell and take a substantial capital gains hit. In any event, though the market maybe cooling, enough buyers are willing to compete and spend what it takes to buy the home that they want. Averages can mask all sorts of anomalies.
A Contradiction of Sorts?
Is there really a softening in the market? While average year-to-year price comparisons may show minimal or no percentage growth for the city, the numbers are only averages, and buried in the averages are an awful lot of properties whose final sale price exceeded list price; often by 20% to 40%!
While we are not likely to see year-over-year price growth of 10+% in 2016, there are fewer single-family home properties coming to market and competition remains intense. My crystal ball predicts a 4.6% average price increase over 2015 versus the 13.3% appreciation in 2015 over 2014. A cool down in year-over-year price growth is also the story with condominiums (estimate – 2.8% price growth), though new construction adds to supply. Then there is Brexit, which is likely to have an impact on both buyer and seller psychology. Hmmmmm.
The Pulse of the Market book (edited Pulses from 2005 to 2015) is available in paperback and Kindle at Amazon.com. It offers insights and perspectives on what has made San Francisco residential real estate tick in the past 10 years. Let me know if you would like a personal autograph.
Please feel free to email or ring me at 415-730-7772 when you need real estate expertise.