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Amid the record surge in luxury home sales.
By Wolf Richter for WOLF STREET.
The San Francisco market is dominated by condos. In recent decades, almost all residential construction has been in multi-family buildings – apartments and condos – and almost no single-family homes have been built, which makes sense for a city enclosed by water on three sides.
In terms of condos over the past four months, sales have hovered around 450 units per month, not counting sales of new condos which are processed directly by the promoters’ sales offices and not reported to the MLS. Home sales were in the order of 300 units per month. So that’s the size of the market, with condominium sales generally being higher than home sales. And this market has completely split in two.
Over the past four months, culminating in June, there has been a historic increase in sales of luxury homes in San Francisco. Luxury in San Francisco starts at $ 3 million. In June, according to Compass, 70 sales of luxury homes were closed, nearly double previous peaks.
Much of this surge in luxury home sales is due to the fact that the rich have become immeasurably richer in this pandemic, thanks to the strategy of asset price inflation that the Fed has pursued – opting for sadly. famous “wealth effect” – and some of them bought luxury homes.
Median prices are sensitive to changes in the mix. And that record number of luxury home sales that were closed in the past four months shifted the composition of total home sales and skewed the median price upward (a sharp drop in the number of luxury home sales in the coming months would dissipate some of this price spike).
And so, according to MLS data provided by Thomas Stone, a retired Sonoma County real estate broker, the median price of single-family homes in June hit $ 2.1 million, after tripling since 2012, for quite a while. WTF:
But the condos are begging to delay.
While the median condo price has been volatile, rebounding as median prices do, it hasn’t gone anywhere in over three years.
In June, the median price of condos was $ 1.28 million, roughly where it was for the first time in March 2018. While the median price of homes has tripled since 2012, the median price of condos has only doubled since then. OK, that sounds kinda funny, something that has “only doubled” in nine years, I mean, what kind of rinky-dink market is San Francisco?
Condos have had their share of crazy price hikes, but before March 2018. Since then, the median price has bounced up and down, but has essentially gone nowhere. And there have been a lot of condos on the market for years, and new ones are coming out all the time.
During the housing crisis, the median condo price and the median home price weren’t that far apart; but since 2015 the gap has started to widen, and now the median home price is $ 900,000 higher than the median condo price:
“All markets are driven by fear, and none of them are rational,” Thomas Stone, the retired real estate broker, said of this situation (he will be happy to send readers a report. on MLS-generated housing trends for all counties in Northern California, free; you can find her email here).
Similar situation in the wider bay area.
In the five Bay Area counties covered by the Case-Shiller Home Price Index – San Francisco, San Mateo, Alameda, Contra Costa and Marin – similar trends are occurring. But the Case-Shiller methodology avoids the problem of a change in mix biasing the median price because it does not use the median price; it uses the “selling pairs” method, where the selling price of a house in the current month is compared to the selling price of the even house when it sold previously. This is a big advantage.
The downside is that it is about four months behind when the actual trades were closed, compared to the median price index which is about a month behind the actual trades.
This chart shows the house price indexes by price level and the condominium price index (red) in the Bay Area of five counties. San Francisco is the most expensive housing market among the five counties, but it also has the largest share of condos.
Home prices in all price brackets started to climb last year, while condo prices continued to go nowhere. The last reading of the condominium price index (“April”) corresponded to its initial level in mid-2018:
The San Francisco Bay Area entered the pandemic with a flat housing market. According to the Case-Shiller indices, throughout 2019, house prices had fallen or increased slightly from year to year, depending on the month. Median prices showed similar trends. Condominium prices declined slightly year over year in 2019.
What changed everything in terms of house prices was the pandemic – the wealth effect – and house prices suddenly exploded. But the pandemic hasn’t changed condo prices much.
Food for thought: Condominium prices, according to the Case-Shiller chart above, had also flattened in the years leading up to the housing crisis in the San Francisco Bay Area.
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