The New Mansions of Noe Valley: Part I

 

For many San Franciscans, talk of the city’s mansions conjures images of the so-called “Prestige North” — the trophy properties of Pacific Heights, Presidio Heights and Sea Cliff which are historically the most expensive single-family homes San Francisco has to offer. Indeed, when 2701 Broadway sold earlier this year for $31M it became the highest priced sale of the year. Nonetheless, there’s been a remarkable shift in the number of multi-million dollar home sales in recent years to the city’s more southerly neighborhoods.

Between 2012 and 2014, the number of single-family homes sales $3M+ in Noe Valley increased more than 800%; if the eight homes currently listed [we’ll examine some of these in The New Mansions of Noe Valley: Part II] trade at or above listing price by the end of 2015, that figure will reach 900% over the four year period. See this chart of $3M+ Noe Valley home sales over the past decade:

 

Screen Shot 2015-10-13 at 8.00.50 PM

 

Earlier this year, Noe Valley saw its record-setting most expensive home sale ever, 625 Duncan (March 2014), matched by 553 Elizabeth (June 2015) — each sold for $7M. [Note: 625 Duncan was then partially gutted and re-sold in April 2015 for $4.4M.] That same month, Noe got its new next priciest sale at 471 Hoffman, sold for $6.7M. In all, 19 $3M+ single-family homes in Noe Valley have sold YTD — compare that to 23 in Pacific Heights.

At various times over the past decade, the average $/sqft sales price in Noe Valley has exceeded that of Pacific Heights, both with consideration to all property types sold and also individually to homes, condos, and TICs leading to some dramatic comparisons between the two neighborhoods. In 2013 it was said “Pacific Heights is cheap compared to Noe Valley” with regard to particular $/sqft figures, and last year it was declared “Noe is the new Pac Heights” following a measured shift of dominance in the number $2M+ single-family home sales from the “Prestige North” to the Noe, Eureka and Cole Valleys.

With regard to median sales prices for single-family homes, Noe Valley led the whole of San Francisco in surpassing the $1M mark by almost five years. Not since May 2009 has the neighborhood seen a six-figure median for houses, and today close to 95% of all properties there — houses, condos and TICs — are valued at $1M+ according to this Zillow report.

 

In fact, having grown from 54.26% in January 2010, the number of $1M+ properties as a percentage of all housing stock in Noe Valley today is the 3rd highest in the city, trailing Inner Sunset (95.67%) and Central Richmond (95.64%). Pacific Heights comes in 4th at 88.24%.

 

 

While neither Noe Valley nor Pacific Heights could claim the highest average $/sqft for houses in September 2015, the spread between their prices — $1,334/sqft and $1,509/sqft, respectively — is relatively small. And while Noe is only one of a handful of neighborhoods in the southern part of San Francisco to experience some of the highest average annual compound appreciation rates in the long term, none of the others come close to touching the “Prestige North” — in terms of ultra-luxury house prices, average $/sqft figures, median single-family home prices, percentage of $1M+ properties, number of $3M+ homes sales or otherwise.

 

image002

 

With Noe Valley’s easy access to Silicon Valley, it’s proven to be a desirable area for wealthy tech-employed homebuyers. Furthermore, the neighborhood’s limited capacity for infill luxury housing developments means that any existing structure is an appealing candidate for renovation, expansion and/or rebuild for 21st century sensibilities. Looking at the $3M+ single-family homes sold this year as well as ones currently on the market, it’s evident the neighborhood is experiencing a wave a mansionization every bit as worthy of “Prestige” as Pacific Heights.

In The New Mansions of Noe Valley: Part II, we’ll take a look at some of these properties and offer a professional’s analysis of the draws for these mansions that tech built. Stay tuned!

 

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

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Gold Rush Real Estate: Then & Now

Portsmouth Square, 1851

Portsmouth Square, 1851

 

When writer Bayard Taylor arrived in San Francisco by ship in the summer of 1849 and began chronicling the Gold Rush economy in his dispatches for the New-York Daily Tribune, he feared nobody would believe him. The imbalance of supply and demand for basic essentials — food, tools, clothing, equipment — was riding high, driving prices to astronomical levels–

 

“There were reports of canteens charging a dollar for a slice of bread or two if it was buttered, the equivalent of $56. A dozen eggs might cost you $90 at today’s prices; a pick axe would be the equivalent of $1,500; a pound of coffee $1,200 and a pair of boots as much as $3,000…”Smithsonian

 

In today’s economy — booming not with gold but with technology — even San Francisco locals are in disbelief to learn the premiums being paid for another commodity in short supply: real estate. In sharp contrast with current times, mid-19th century SF was a largely rural setting with abundant raw land awaiting the development of businesses, homes and infrastructure. Now, there’s practically nowhere to build up — and when it comes to homes prices here in one of America’s richest cities, the sky is the limit.

Just for fun, let’s take a look at some Gold Rush era properties that have hit the market in recent years and their inflation adjusted prices. They’ll have you wishing you could travel back in time!

 

1032 Broadway Street, Nob Hill

Year Built: 1853

2015 List Price: $12,000,000

Inflation Adjusted 1853 Price: $434,813.47

1032 broadway

 

 

1948 Sutter Street, Lower Pacific Heights

Year Built: 1858

2006 Sales Price: $2,405,000

Inflation Adjusted 1858 Price: $115,151.52

1948 sutter

 

 

816 Grove Street, Alamo Square

Year Built: 1850

2004 Sales Price: $1,650,000

Inflation Adjusted 1850 Price: $75,370.45

816 grove

 

 

10 Napier Lane, Telegraph Hill

Year Built: 1855

2012 Sales Price: $810,000

Inflation Adjusted 1855 Price: $32,849.01

10 napier

 

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

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Global Economies & The San Francisco Real Estate Market

 

Current events happening in different parts of world and in different markets are impacting our local economy here in San Francisco. Let’s take a look at some of the big ones: oil, Europe, China, United States and technology.

Oil is typically about $100 to $110 per barrel — that’s been pretty common for the past several years. In the past six months, it’s gone down to about $40 per barrel. That’s basically a crash in that particular market. Generally, it’s a great thing for consumers, it’s a great thing for us at the gas pumps, it’s a great thing in terms of the delivery and manufacture of goods — so for us as consumers it’s a huge tax break, but for the countries that are dependent upon oil for revenues it’s not such a great thing. When the markets are looking at all this, they’re looking where the growth in economies is worldwide, and those that are big oil producers aren’t doing so great.

Why does this matter? Well, it matters to Russia — a good portion of Russia’s economic activity is through petrochemicals. It matters to the Middle East. It matters to Canada. It matters to Mexico. It matters to Brazil. All of these economies are having some struggles now and going forward, and especially the Middle East. In the Middle East, 90% of Iran’s budget comes from oil revenues. For Iran to balance its budget, it needs to see $100 per barrel. With oil at $45 per barrel right now, they’re running a huge budget deficit and that probably is motivating them to sign this nuclear deal with the United States because they have about $140 Billion tied up in banks across the globe, but they — as an economy — as really in dire straits. Low oil prices seem to be here to stay. Some economists are saying the price could drop as low as $25 or $35 per barrel because we are seeing an oversupply versus demand. In Canada and even the United States now, we are producing more oil than we consume. Economies that are dependent upon this particular commodity might see some trouble going forward. Moving on…

Europe did some things very different than the United States did back in 2008 and 2009. As you might recall, back in 2008 we had the huge stimulus package which was very controversial at the time. It did create some very significant deficits, but it was the right thing to go into. We spent about $2-3 Trillion dollars on those types of projects, and we also had the Federal Reserve that had QE1, QE2, QE3 and they basically have bought assets in the market that total about $4.5 Trillion. Those two things that we did got the US economy jumpstarted and actually doing quite well. Conversely, Europe didn’t do that.

Europe instead took a path of austerity. Europe was worried about running deficits. It was worried about things that it shouldn’t have been worried about at that particular moment in time, so it didn’t go and flood the markets with capital. Consequently, its economies never really got going quite as well or as quickly as the United States’ did. Certain markets are doing better than others. Germany and England are doing better, but Europe as a whole isn’t doing so well. Where the markets are starting to be jittery now in Europe, that trend is not looking so positive. Europe’s GDP was running about 1% to 1.5% and it looked like it may be going in the right direction, but over the past several quarters now it’s starting to go the opposite direction — it’s starting to go down to 1% or less. But more importantly what they’re concerned about in Europe is deflation beginning to take hold. Our inflation rate is running about 1.5% to 2%, and Europe’s is actually negative for the past quarter and they’re expecting it to be negative this quarter. Now, Europe is waking up and taking aggressive measures of the same sort the United States did back in 2008 and 2009– they’re flooding the markets with capital, they have their own type of QE program, and we’ll see a lot of that type of activity now in Europe.

Another issue for Europe is the huge migration of immigrants from Syria and elsewhere in the Middle East. There is about 1.2 Million people in all — most going to Europe — that are looking for a home. Where are they going to live? Who is going to feed them? Those matters are going to weigh on the governments where these immigrants land and can add some very significant issues for Europe.

Moving on from oil and Europe, let’s talk about the real big issue here– the #2 largest economy in the world: China. China is the issue that most economists and investors are looking at very carefully. China may be going into a bubble. In fact, it is. This past summer, China’s stock market dropped about 40% in two months. You can imagine what that does to consumer psychology. The other piece to this is that the Chinese market — 98% of it — is owned by Chinese nationals. China doesn’t have the institutions that the United States does — it doesn’t have hedge funds, for example — that own most of the market. Instead, it’s owned by ordinary people like you and me. These Chinese nationals then begin to panic and sell their stocks, and this created a downward spiral in terms of its market.

In response to this, China did two things: 1) it ceased the trading of all small- and mid-cap stocks (about 60% of their market), and 2) it began buying assets over the past 2 to 3 weeks. While the Chinese economy has stabilized as a result, it’s somewhat of a false stabilization instead of letting the market go down and hit a bottom and be rebuilt. So there’s more to play out with the Chinese market — it doesn’t have the systems or institutions that we have in the United States, and the stock market collapse has changed the way people perceive China. We’re seeing a significant flight of capital from Asian consumers — the United States being a beneficiary of that. San Francisco and other US markets that the Chinese know are probably going to see more of that capital coming in the short term.

The other part of the bubble we’re seeing in China is its real estate market:

Oil is certainly some noise out there. Europe is some noise out there. China is the thing everyone is watching. What does that mean to the United States? Of the S&P 500, only 10% of those companies get a significant portion of their revenue from China. So the actual impact here may actually not be that great in terms of fiscal impact or jobs, but there’s a psychological impact that could occur and we’ll see where that goes.

Now to the good news!

In the United States, we’re doing really really well and headed in the right direction. Our inflation is very low — we’re running around 1.5% to 2%. Our GDP is on the upswing — this year we’re looking at about 2.5% GDP growth for the year following a slow (negative) first quarter of 2015 and a very healthy fourth quarter (projected around 3%). Some economists are saying we could see as high as 3.5% GDP growth next year. Unemployment: we’re at 5.1% — in most markets over the past couple decades that would be considered full employment. As mentioned earlier, low oil prices are a bonus to us here and will add some grease to our engine. Additionally, interest rates are remaining very low. The United States is experiencing very strong household formation — we have 1.5 Million new households and only 1.2 Million new homes being built, so supply is not meeting demand and that has us moving in the right direction as well; real estate will be a shining part of our economy going forward. 65 Million households in the US are making $100,000 per year or more — what’s even more interesting is that two thirds of those individuals are Generation X, Generation Y and Millennial. So there is now becoming a transfer of wealth from Baby Boomers to these younger populations. Lastly, nine of the top 10 companies in the world are US based. We have Apple, we have Google — all of the big companies are here.

The San Francisco Bay Area is the center of most of the United States’ growth. Two thirds of the jobs now in San Francisco are tech related. That’s a huge change from 10 or 20 years ago. We used to have textiles, we used to have Levi and Gap. We used to have Chevron here before it moved to the East Bay. We used to have banking — it’s still here, but not in the same way it was. Now, tech is the big driver of our economy here in San Francisco. It’s projected that the Bay Area’s population will grow by 30% by the year 2040. That’s about another million people — and where they’re going to go is a really good question. We’re seeing a lot of high-rise development here in San Francisco, a lot of infill development in some other markets. The venture capital put into the United States’ economy in 2015 is estimated at $45 Billion. Of that $45 Billion, $26 Billion is in California, and 46% of that is specifically here in San Francisco. Why is all of this happening here? It’s the culture of innovation.

When we’re talking about technology, there’s a misnomer that we’re talking about Silicon Valley. But Silicon Valley is really the Bay Area now. You have Google that has moved into Novato. Uber just bought the Sears building in Downtown Oakland. PeopleSoft, now Oracle, is also out in the East Bay in Contra Costa County. If GDP was measured just in the Bay Area, it would probably be 5.5% to 6%. Silicon Valley really is the Bay Area, and that’s certainly going to benefit our real estate market here in San Francisco.

 

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

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San Francisco Market Overview: September 2015

 

September is historically the month San Francisco sees the greatest number of new listings come on the market, and this year it hasn’t disappointed! Since the 1st of the month, more than 800 single-family homes and condos have hit the market, blowing last year’s count out of the water. Further sweetening the situation for prospective home buyers, there are more condos for sale now than any time in the past two years and the most sub-million dollar single-family homes we’ve seen all year.

While median prices for both property types have remained consistently above $1,000,000 for the past seven months, the month-over-month rate of appreciation has cooled recently leading some economists to believe the market is leveling off. Still, there are plenty of buyers out there and the key to home values will continue to be the pace of job growth. On that note, employment is at a record high in San Francisco, and the East Bay (where many people priced out of SF are already putting increasing pressure on the housing market) is in for some major job growth in the coming months, years and decades.

Uber’s recent purchase of the former Sears building in downtown Oakland could prove a huge boon for the city. Aside from the estimated 600 new residents it will bring to the East Bay, it could open the floodgates for startups to establish headquarters in the area. Additionally, Berkeley has a billion-dollar real estate pipeline — one of the largest building booms in its 147-year history — that’ll bring jobs and residents to the area over the next 40 years. If conventional wisdom is correct, the real estate market in the East Bay will be heating up — way up!

A recent study by rental website Zumper found that for every $1 billion in venture capital injected into a local economy, 1-bedroom rents will increase $69 per month, and 2-bedroom rents will increase $99 per month. In San Francisco, $1,069 or 33% of a median 1-bedroom rent can be attributed to this stimulation. As housing prices accelerate around the Bay Area, it should become increasing clear that the housing crunch is a regional issue rather than a strictly San Francisco one, and the solution to it will be best achieved in a coordinated effort.

 

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

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New Inventory: Relief For Home Buyers?

At last, the promised new inventory has arrived. While we generally see a spike in listings during one of our two selling seasons — spring and fall — the past several years have been dismal in terms of turning out new listings. Not so this year.

The question is: Will that translate into any relief for buyers?

 

I recently attended a symposium on the state of housing in San Francisco. If you have a couple of hours to kill, you can find the entire panel discussion audio here. While I found the discussion fascinating (it is my job after all) there are a couple of stats that particularly caught my attention:

  • Since 2010, we’ve added 10,000 residents to San Francisco every year, increasing our population by 50,000
  • During that same time frame, 80,000 new jobs have been created and only 10,000 new housing units have been added, well over 70% of which are rentals
  • According to Ted Egan, San Francisco’s Chief Economist, each year 70,000 people move into San Francisco (which means 60,000 move out)
  • Wholesale new construction costs are currently running $950-$1000/square-foot in San Francisco, which drops by only $50-$100/square-foot in Oakland; sale prices in the East Bay continue to garner significantly less than San Francisco

I have certainly spoken to more than one agent recently who had offer dates come and go, or only had one party come to the table. My personal take continues to be this: Fall is a really good window to buy, and I’m advising my sellers hold off until spring to list their property for sale (situation and replacement property depending). That said, I am actively looking to work with more buyers this fall — If you know someone interested in buying please pass my name along. I’ll be happy to speak with them even if they’re not sure yet.

 

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

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