"’The San Francisco Bay Area is the hottest market in the country right now,’ said Errol Samuelson, president of Realtor.com, the online marketplace for the National Association of Realtors.”
The above quote is from the March 15th, 2013, Chronicle Article: “Bay Area Home Prices Up 24.6% over 2012”.
This article’s title, to be accurate, should read “February’s
Bay Area Median Sales Price
Up 24.6% from February 2012
.” Because median sales price (and monthly median in particular) is something quite different from what is implied in this article – all prices or general home values – i.e. that the same, average “Bay Area” home that sold in February 2012 is today worth 25% more. Not that some aren’t, but as a generality about the entire Bay Area, it probably isn’t true. Remember that median sales prices are affected by other issues besides changes in value, such as available inventory, buyer trends, seasonality, and big changes in the distressed and luxury home segments.
And monthly data is not the most reliable or meaningful data to use, since it fluctuates all the time without great consequence. (Which is why most of our analyses use data from quarterly periods or longer.)
In this case, there are three big issues affecting median sales prices: 1) an actual increase in home values for a variety of reasons (supply, demand, economic conditions), 2) a massive decrease in distressed home sales (and a correlating, big increase in sales prices for those distressed homes that do sell), and 3) a big surge in luxury home sales. Since median price is that price at which half the properties sold for more and half for less, when distressed sales plunge and luxury homes soar, the needle pointing to the median price jumps out of proportion to the change in general market values.
In the article, there is a chart of DataQuick data showing that San Francisco’s median home sales price went up 12.3% year over year, and other counties showing jumps up to 32.3%. First of all, looking at median sales prices of sales reported to MLS, the SF house median went up 26% from February 2012 to February 2013 ($635k to $800.5k), and condos went up 21% ($675k to $815k). DataQuick pegs the SF median home sales price at a much lower $700.5k. So they’re pulling other data – from public records, I assume -- which doesn’t really reflect our fair-market-value public-home-sale (and specifically resale) market, the vast majority of which goes through MLS.
As the markets recover, those counties that had the greatest number of distressed sales (now dramatically shrinking) will see the biggest percentage jumps in median sales price. Hence in the article, Contra Costa shows the 32.3% jump. Have general home values really jumped there that much in 12 months? Probably not.
This is one of the reasons, that during the down years, I separated out distressed-sale median prices and non-distressed-sale median prices: Distressed sales badly distorted the decline in general home values as they soared (as measured by median sales price) and are now distorting the increase in general home values as they disappear, especially in those counties hit hardest by distressed sales. (SF was probably the least affected of Bay Area counties by distressed sales, though it still climbed to 20% of sales at its height in previous years. Contra Costa hit over 60%.)
Just FYI, for those interested, or who want to know why, after reading the article, San Francisco is “lagging” the other counties in increase in values. This is simply not the case. Quite the contrary: the city is at the forefront of the real estate market rebound in the Bay Area, state and country.
Remember also that each county contains dozens of micro-markets of widely (sometimes wildly) different values and market conditions: these micro-markets began their recovery at different points over the last 16 months and are now recovering at different rates.
The complete Chronicle article can be found here:
SF Chronicle Article on Home Price Changes