Archive for the ‘home values’ Category

To Buy or to Rent: That is the Question

top-10-one-bedroom-rents-in-september-2015

Unless you are fortunate to live in a rent controlled building, you may have noticed your monthly rent rise dramatically in recent years. Checking in at $3,530 per month, the median rent for a one-bedroom has been the highest in the country for six months following a 13.5% rise last year (and up as much as 29.2% in Noe Valley). For many renters, what they pay out every month could easily be a mortgage payment on a comparable place– the monthly Principal + Interest on a $1,000,000 home is $3819.32, assuming 20% down and a 30-year mortgage fixed at 4%. As of today, there is more than 330 single-family homes and condos/TICs/lofts that are Active on the MLS listed for under $1,000,000.

Plugging in local San Francisco data (August 2015 sales figures) to the New York Times’ Rent vs. Buy calculator reveals some compelling numbers. Buying a condominium at August 2015’s $1,045,000 median sale price or a single-family home at the $1,225,444,000 median is a better financial decision even if you could rent for free!

 

San Francisco condominium Rent vs. Buy results:

condo

San Francisco single-family home Rent vs. Buy results:

home

 

The assumptions I made in the above calculations are as follows:

  • Purchase price: $1,045,000 for condos, $1,225,444 for single-family homes
  • Length of time in home: 5 years
  • Mortgage Rate: 4%
  • Down payment: 20%
  • Length of Mortgage: 30 years
  • Home price growth rate: 13.3% for condos, 20.0% for single-family homes (12-month average, the NYT calculator maxes out at 15%)
  • Rent growth rate: 13.5% (median one-bedroom increase in 2014)
  • Investment rate of return: 7% (approx. long-term average annual ROI of stocks)
  • Inflation Rate: 2%
  • Property tax rate: 1.19%
  • Marginal tax rate: 28%
  • Taxes filed on a Joint Return
  • Costs of buying a home: 3% (approx. closing costs)
  • Costs of selling a home: 8% (approx. closing costs + marketing + customary 5% commission to brokers)
  • Maintenance/renovation: 1%
  • Homeowner’s insurance: 0.1% (approx. $50-$100+ per month depending on property type)
  • Monthly utilities: $100
  • Monthly common fees: $600 for condos, $0 for single-family homes
  • Common fees deduction: 0%
  • Security Deposit: 1 month
  • Broker’s fee: 0%
  • Renter’s Insurance: 0.1%

 

San Francisco condominium median price growth, 2005 to present:

San Francisco single-family home median price growth, 2005 to present:

 

Are you getting my monthly San Francisco newsletter? You can subscribe here.

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

Share

Triple-Digit Temps, Six-Figure Overbids

 

It’s heating up — and I’m not just talking about the triple-digit temperatures around the Bay Area!

More than 145 properties have come on the market in San Francisco in the past seven days, signaling what promises to be a heated post-Labor Day selling season for local real estate. September is historically the biggest month for new listings, and while some things change — year-over-year lower inventory, fewer average days on market, higher median prices, etc. — this looks to be one trend that’s remaining constant.

 

Already this month, nearly a dozen homes have traded for 30% or more over list price; Even with the forthcoming wave of new inventory, sellers who price and market right have a good shot at realizing six-figure overbids. This article from the Wall Street Journal outlines some ways both home sellers and buyers can succeed at bidding wars, surely implemented with success by the sellers of some of San Francisco’s Top 20 Overbids.

Those competing for these properties are primarily high-paid tech professionals (the number of employed San Francisco residents is at a record high) and overseas buyers looking for investment properties. Just recently, San Francisco was named as one of the top cities for Chinese investors. Meanwhile, economic volatility abroad is underscoring the safety and profitability of real estate as an investment, and San Francisco real estate in particular has a proven track record of resilience. With that said…

Two looming events may impact local market performance in the next few weeks: interest rate hikes mandated by the Federal Reserve, and new disclosure rules effective October 3rd that will (at least temporarily) lengthen the escrow process. How will these play out? We’ll have to wait and see.

Are you getting my monthly San Francisco newsletter? You can subscribe here.

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

Share

Stock Market Volatility & San Francisco Real Estate

With all the current drama in world stock markets, it’s not unreasonable that a person will want to step back and see what happens – and trying to convince someone otherwise is a losing proposition. Based on current economic activity and conditions in the U.S., there is very little chance of a U.S. stock market crash occurring in the near future (though the scale of an “adjustment”, if such happens, is unknown) and it’s quite possible the current dramatic volatility may soon become a distant and irrelevant memory, as other short-term economic events often have.  And besides U.S. economic conditions, there are the existing boom economic conditions in the Bay Area, which means our housing market may react differently. In any case, concerned home buyers and sellers should wait and see how things shake out. It may well be one of those blips that mean little and impacts the San Francisco market very little. Generally speaking, over the past 30 years, it has taken a literal stock market crash to severely impact our market values.

Of course, nobody has a crystal ball to know what the stock market will do. Also, where we are vis a vis what will eventually turn out to be the top of the market in our current cycle is totally unknown.  

Housing prices typically don’t react at all to short term ups and downs in the stock market, though depending on how dramatic they are, they can temporarily slow activity as buyers wait to see if something really serious, with long-term ramifications, is developing. It is generally the more affluent who step back and wait, since 1) they have much more wealth in financial investments (stocks), and 2) they’re much more tuned into financial market movements. Housing prices are not a liquid bid-ask market – we sell small numbers of relatively unique homes in San Francisco, not millions of uniform shares of stock – and sellers always react more slowly to economic downturns since they don’t want to reduce prices if they don’t have to, and no one can make them sell. Also, of course, there’s a built-in delay in sales between offer negotiations and closed transactions, so it takes a while for price movements to clarify.

Generally, all market segments react to big, sustained, macro-economic events as can be seen in the 3 S&P Case-Shiller charts below for the low, mid an high-priced tiers of the Bay Area home markets. However, it is interesting that when the dot-com bubble burst, only the mid- and high-price tiers’ home prices were affected (and then, briefly), and the high-priced tier was impacted more than the mid-tier. The buyers in the high tier were much more affected in their wealth by the crash in the Nasdaq, especially in the Bay Area, and the most affluent buyers drew back the most as they waited to assess the shake out.

For what it’s worth, in the last cycle, our more expensive San Francisco neighborhoods were the last to peak in value in early 2008, and the first to recover in late 2011/early 2012.  San Francisco was generally much less impacted by the bubble’s crash than the rest of the Bay Area, state and the country, though some neighborhoods were more affected than others. Generally speaking, San Francisco’s housing market has since appreciated well beyond its previous peak values.

In the last bubble and recession, lower priced homes surged much higher and crashed much more dramatically than higher priced ones, but that was not because of the stock market, but because of the subprime loan situation which led to massive foreclosures in the lower end (with buyers who couldn’t afford the home they were buying in the first place). Subprime lending played a very small part in higher priced home purchases (which dominate in San Francisco), whose buyers also tended to be more financially savvy (and weren’t targeted by predatory loan brokers and generally didn’t buy homes they couldn’t afford).

I’ll start out with our updated chart on the S&P 500 so one can compare the stock market to the various Case-Shiller Index Bay Area home price tiers. Again, different price tiers had bubbles and crashes of different magnitude due to the subprime financing (and refinancing) fiasco. And please note that while the latest stock market decline is indicated, other short-term fluctuations will not show up in year to year figures.

It’s interesting to note that all 3 Bay Area housing price tiers, according to Case-Shiller, are now showing a uniform 117% appreciation rate since year 2000.

This chart below tracks the appreciation that has occurred in the high-price-tier market – which most of San Francisco’s housing is in – since the recover began in 2012.

image001

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

Share

San Francisco Market Overview: August 2015

 

It’s been an uncommonly busy summer for real estate in the Bay Area. In fact, more single-family homes sold in the region last month than in any July since the housing bust! Even with median prices for homes and condos alike in San Francisco exceeding $1,000,000 for the 6th consecutive month and inventory at its lowest since January, the number of property sales recently has kept on pace with the spring months.

Even with prices in the area at record highs, there’s opportunity to buy within the six-figure range. Almost 100 sub-million dollar condos have traded hands this year in the Noe Valley / Cole Valley / Corona Heights area alone. This past week, two properties have come on the market with list prices under $500,000: a Victorian TIC in the heart of the Mission, and a Downtown studio condo. Not only may properties like these be great investment opportunities, but shelter from the city’s rent explosion as well.

Right around the corner, Labor Day Weekend marks the beginning of the last big market push before the end of the year. Historically, we see inventory spike in September, and I’m seeing many properties getting prepped right now for the open market. Employment in San Francisco is at a record high, and an interest rate hike is looming on the horizon — all things considered, it could be the perfect storm for a frenzied Q4.

In every market there are always ‘deals’. You just have to know where to look, how to win them and be prepared to act.

 

PS: Here’s a first look at the 67 new condos at the corner of Franklin and Bush, expected to begin selling this winter. Additional information: 1450FranklinSF.com

 

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

Share

San Francisco Real Estate on a < $1Million Budget

 

There’s the notion that a million dollars is the price you have to pay if you want to play in San Francisco’s red hot real estate market. After all, the most expensive properties get a lot of media attention– But if the median price is $1,160,000, that means almost half the properties on the market are selling for under $1 million.

Of those sub-million dollar properties, the majority are neither Below Market Rate units nor fixer-uppers, instead livable turn-key homes (search homes here). Socketsite recently published news of a double-digit uptick in the number of six-figure single-family homes for sale. Just this week, this two-bedroom single-family home in San Francisco’s Excelsior neighborhood sold for $630,000. The property is already occupied by an unprotected month-to-month tenant agreeable to paying market rent, making this a positive cashflow investment for the non-occupant buyer:

 

11828568_10153231072886219_2952473495617715402_n

 

Year to date, Excelsior has in fact had the most six-figure single-family home sales of any neighborhood:

 

image001

 

Last week, this two-bedroom two-bathroom condominium at the amenity-rich Telegraph Landing in San Francisco’s North Waterfront neighborhood sold for $950,000. It’s one of the almost 200 two-bedroom condos that have sold in 2015 so far:

 

10426193_10153074775116219_453162945833727154_n

image002

 

First-time homebuyer, investor, mom & pop… a million dollars is a lot of money to almost everyone, and opportunities do really exist beyond the hype of million dollar listings. Sure, prices have been reaching new peaks month after month, climbing to daunting highs. But actually San Francisco real estate is still more affordable now than at the height of the market in 2007, thanks to low mortgage interest rates:

 

Screen Shot 2015-07-10 at 3.31.15 PM

 

The frenzy that exists in San Francisco’s real estate market right now may be attributed to many factors: a booming local economy, low inventory, very few new residential developments, consumer confidence, credit availability, etc. As the city continues to stake its place as a world class destination, I believe prices will continue to rise — perhaps up to $3,000 per square foot, on par with Tokyo, Sydney and London. With that in mind, it may be only a matter of time before sub-million dollar home sales in the city are a thing of the past. Never underestimate the voracity of the San Francisco market!

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

Share