Updated S&P Case-Shiller Home Price Index for San Francisco Metro Area
(Illustrative charts can be found further down within this report.)
The Case-Shiller Index for
the San Francisco Metro Area covers the house markets of 5 Bay Area counties,
divided into 3 price tiers, each constituting one third of unit sales. Most of
the San Francisco’s and Marin's house sales are in the “high price tier", so that is where we focus most of our attention.” The Index
is published 2 months after the month in question and reflects a 3-month
rolling average, so it will always reflect the market of some months ago. The Index for September was released on the last Tuesday of November.
The 5 counties in our Case-Shiller Metro Statistical Area are San Francisco, Marin, San Mateo, Alameda and Contra Costa. Needless to say, there are many different real estate markets found in such a broad region, and it's probably fair to say that the city of San Francisco's market has generally out-performed the general metro-area market.
The first two charts illustrate
the price recovery of the Bay Area high-price-tier home market over the past year and since 2012 began, when the market recovery really started in earnest. In both 2012 and 2013, home prices surged in the spring and
then plateaued in the summer-autumn. The surge in prices that occurred in
spring of 2013 was particularly dramatic, reflecting a frenzied market of huge
buyer demand, historically low interest rates, increasing consumer confidence
and extremely low inventory. In San Francisco itself, it was further
exacerbated by an expanding population and the high-tech-fueled explosion of new wealth. The market then calmed down somewhat in the second half of 2013, but then heated up yet again
in early 2014. In fact, the spring 2014 market was, if anything, even more ferocious than the previous year (at least in San Francisco).
After the feverish spring market, home prices in the high-price tier flattened and then ticked down a little, while more affordable home segments have continued to tick up. It's not unusual for the market to cool off and plateau during the summer months. The next big indication of what's occurring in the market will come with the Case-Shiller Index released at the end of December, which will begin to reflect autumn-season sales negotiated in September and closing in October. Note that small monthly fluctuations are not particularly meaningful until substantiated over a longer term.
For more regarding how seasonality affects real estate: Seasonality
& the Real Estate Market
Case-Shiller Index numbers
all reflect home prices as compared to the home price of January 2000,
which has been designated with a value of 100. Thus, a reading of 196 signifies
home prices 96% above those of January 2000.
Short-Term Trends: 12 Months & Since Market Recovery Began in 2012
Longer-Term Trends & Cycles
The third and fourths charts below reflect what has occurred in the longer term (for the high-price tier that applies best to San Francisco and Marin counties), showing the cycle of recession, recovery, bubble, decline/recession since 1996, and since 1988. Note that, past cycle changes will always look smaller than more recent cycles because the prices are so much higher now; if the chart reflected only percentage changes between points, the difference in the scale of cycles would not look so dramatic.
Different Bubbles, Crashes & Recoveries
This next chart compares the
3 different price tiers since 2000. The low-price-tier’s bubble was much more
inflated, fantastically inflated, by the subprime lending fiasco – an absurd 170% appreciation over 6
years – which led to a much greater crash (foreclosure crisis) than the other two price tiers. All 3
tiers have been undergoing dramatic recoveries, but because the bubbles of the
low and middle tiers were greater, their recoveries leave them well below their
artificially inflated peak values of 2006. It may be a long time before the
low-price-tier of houses regains its previous peak values. The high-price-tier,
with a much smaller bubble, and little affected by distressed property sales,
has now exceeded its previous peak values of 2007. Most
neighborhoods in the city of San Francisco itself have surpassed previous peak values by substantial margins.
It’s interesting to note that
despite the different scales of their bubbles, crashes and recoveries, all
three price tiers now have similar overall appreciation rates when compared to
year 2000. As of May 2014, as seen below, appreciation for all three tiers since 2000 ranged from 93% to 97%. Since July (not shown below), this range has narrowed further to 96% to 97%. This suggests an equilibrium is being achieved across the general real estate market.
Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers.
Bay Area counties such as Alameda, Contra Costa, Napa, Sonoma and Solano have large percentages of their markets dominated by low-price tier homes (though all tiers are represented to greater or lesser degrees). San Francisco, Marin, San Mateo and Santa Clara counties are generally mid and high-price tier markets, and sometimes very high priced indeed. Generally speaking, the higher the price, the smaller the bubble and crash, and the greater the recovery as compared to previous peak values.
Remember that if a price drops
by 50%, then it must go up by 100% to make up the loss: loss percentages and
gain percentages are not created equal.
The two "2014" readings for each tier in the chart below, refer to January 2014 and May 2014.
San Francisco County
And then looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area (and the country): many of its neighborhoods are now blowing past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices. This chart shows both house and condo values, while the C-S charts used above are for house sales only. Median prices are affected by other factors besides changes in values, including seasonality, new constructions, inventory available to purchase, and significant changes in the distressed and luxury home segments. Short-term fluctuations are less meaningful than longer term trends.
And this chart for the Noe and Eureka Valleys neighborhoods of San Francisco shows the explosive recovery seen in many of the city's neighborhoods, pushing home values far above those of 2007. San Francisco, San Mateo and Santa Clara counties are most effected by the high-tech wealth effect on home prices. Noe and Eureka Valleys are particularly prized by this buyer segment and the effect on prices has been astonishing.
All data from sources deemed reliable, but may contain errors and is subject to revision. Statistics are generalities
and how they apply to any specific property is unknown. All numbers should be considered approximate.
© 2014 Paragon Real Estate Group