In this report, various price thresholds will be used for the
luxury home
designation, depending on when the chart was first created, if different property types
are being combined, or simply to look at the high-end market from slightly different
angles. If the luxury segment is defined by the top 10% of sales, then the threshold in
San Francisco for houses was approximately $3 million in 2016, and for condos, between
$1.85 and $1.9 million. However, due to the essential relation of location to value, $3
million might buy you a large, gracious, pristine house in one neighborhood, and an
uninhabitable fixer-upper in another. As always in real estate, the devil is in the
details.
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Year-over-Year Changes in Sales Volume
San Francisco Luxury House Sales
San Francisco Luxury Condo, Co-op & TIC Sales
If you wish, you may skip our summary and jump to additional
graphed analyses further below.
MARKET SUMMARY
The luxury real estate market is impacted by a number of factors: positively, by
improvement in general economic conditions and confidence, highly-paid employment and
population growth, and especially, by the creation of new wealth in large quantities.
All these elements were dynamically present in the Bay Area from 2012 through mid-2015.
Then significant economic and political volatility put down a damper, pretty much across
the board. Chinese stock market turmoil, the crash in oil prices, Brexit, the U.S.
presidential election, as well as an apparent cooling in our high-tech boom, all
injected uncertainty into financial markets and our local luxury real estate market.
Furthermore, Bay Area high-tech IPOs, which had created a stupendous amount of new
wealth since 2011, basically dried up – and newly rich or substantially enrichened
buyers had played a big role in demand. All this was accompanied by a surge in the
construction of new, luxury condo projects in San Francisco, producing a considerable
increase in supply, just as demand appeared to be softening.
The luxury market began to cool, with significant, but not cataclysmic adjustments in
the standard measures of supply and demand. (The
most affordable house
segments around the Bay Area continued to rock and roll last year.) Most affected over
the past 16 months was the market for re-sale luxury condos, particularly in those
districts where big, new-construction projects are concentrated. Their sales appreciably
decreased, with some decline in values. It is hard to get definitive data on new-project
sales activity, but it is believed to have softened as well with the increase in
competitive listings.
While inventory grew, the number of high-end listings, both houses and condos,
expiring without selling jumped, a clear sign of supply outpacing demand,
sellers looking for more money than buyers were willing to pay, or both.
However, there has been nothing approximating a crash and, all in all, demand held up
quite well considering all the circumstances at play. So far, price declines
have been relatively minor; there was no falloff in high-end house sales, in fact those
selling for $3m+ hit a new peak last October. And some smaller and medium-sized luxury
condo projects in the Pacific Heights district saw brisk sales at high prices, this
being a highly prestigious area where new construction is relatively rare. Even with
some cooling in the high-tech boom and the dearth of new IPOs, the local economy
persists as the envy of the world, and an astonishing amount of wealth yet remains in
the Bay Area.
If local companies such as Uber, Airbnb, Pinterest and Palantir go public, it could
recharge demand as the new-wealth machine starts minting new millionaires once
again. On the other hand, how the foreign luxury home buyer will react to
political changes both here and abroad is uncertain. For that matter, with all the
wildly moving parts currently in local, national and international politics and
economics, it is difficult to make predictions with any sense of certainty. However, Ted
Egan, chief economist for the city of San Francisco, puts the odds of a new recession at
10% or less.
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San Francisco Luxury Home Sales
by Neighborhood
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Average Dollar per Square Foot Values
by Year
Average dollar per square foot values ticked down in 2016 for both high-end houses and
condos after years of appreciation, but still remain historically high. Of sales
reported to MLS, 10 houses and 34 condos and co-ops sold for over $2000 per square foot;
6 sales reported values over $3000 per square foot. These sales were concentrated in the
Pacific Heights district, Russian & Nob Hills, and South Beach & Yerba Buena.
Average dollar per square foot values should always be considered gross generalizations,
since there is such a wide variety of homes of differing locations, sizes, conditions,
eras of construction, views, lot sizes, and so on. Square footage can also be measured
in different ways and not all sales even report square footage.
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New Listings, Inventory Levels, Accepted Offer Activity
& Closed Sales by Month
In many of the charts following in this report, not only are longer-term trends in
supply and demand illustrated, but also the extreme seasonality of the luxury homes
market in San Francisco. Activity climbs through spring, slows in summer, spikes in the
short autumn selling season, and then plunges during the mid-winter holiday season.
Among other things, the seasonality of this segment significantly affects monthly and
quarterly median sales prices in the city as the number of expensive home sales ebbs and
flows so dramatically.
As noted at the beginning of this report, the price thresholds for the luxury home
designation sometimes vary from chart to chart, for the reasons previously mentioned.
New Listings Coming on Market
A long-term view since 2006
Monthly Number of Active Listings
Since 2014
Listings Accepting Offers by Month
Since 2014
Monthly Sales Volume Trends
Since 2012
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Market Dynamics Analyses
In many of the following graphs, the cooling of the luxury market in the city in 2016 is
illustrated. The changes are significant, but should not be overstated: The market
cooled from being characterized by overheated demand and inadequate supply, to something
approaching a more normal balance between buyer and seller. So far, there has been
neither a crash in demand nor in prices.
Months Supply of Inventory
by Year and by Month
———————–
Sales Prices to List Prices
by Year and by Month
———————–
Percentage of Listings Selling Over List Price
by Year
Average Days on Market
by Year
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Pricing, Overpricing & Expired Listings
The luxury market has always been more prone to egregious overpricing than the general
market: Perhaps this simply goes along with fabulous homes in high prestige locations,
but it sometimes results in price reductions in the multi-millions. As the market frenzy
has cooled, pricing correctly has become ever more important: Overpricing often has
significant negative ramifications for sellers, including the possibility of no sale
occurring at all – something occurring with greater frequency. As the supply and demand
dynamic has shifted, buyers are competing less, negotiating more aggressively, and
walking away from listings they see as significantly overpriced.
Luxury House Sales
With and Without Price Reductions
Luxury Condo Sales
With and Without Price Reductions
Trends in Expired Listings
———————–
Other recent reports you might find interesting:
Survey of the 2016 San Francisco Real Estate Market
San Francisco Apartment Building Market Report
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It is impossible to know how general statistics apply to any particular home without a
specific comparative market analysis, which we are happy to provide upon request. Please
call or email if you have any questions or need assistance in any way.
These analyses were made in good faith with data from sources deemed reliable, but may
contain errors and are subject to revision. It is not our intent to convince you of a
particular position, but to attempt to provide straightforward data and analysis, so you
can make your own informed decisions. Median and average statistics are enormous
generalities: There are hundreds of different markets in San Francisco and the Bay Area,
each with its own unique dynamics. Median prices and average dollar per square foot
values can be and often are affected by other factors besides changes in fair market
value. Longer term trends are much more meaningful than short-term.
© 2017 Paragon Real Estate Group
