Is San Francisco vulvernable after all?

I'm not saying that the sky is falling, but San Francisco real estate may be vulnerable after all. Prices and sales volumes have both been falling for the last several months. Take a look at Chart #1, below, showing median sale prices for condos in San Francisco.

Chart #1: Median condo sale price, by month

Condo prices have been trending lower for the last four months, and are now almost 15% lower than they were in May. The median price for September (the latest available) is the lowest result in almost two years.

By itself, that doesn't mean much -- monthly prices are volatile, after all. However, sales volumes have been trending lower as well, while inventory has been trending up. Take a look at Chart #2, below, showing sales volumes and inventory levels for condos in San Francisco.

Chart #2: For-sale inventory and recent sales, compared

(San Francisco condos, by month)

The inventory of for-sale listings at the end of September was at its highest level of the last two years. Meanwhile, except for the two (seasonally low) January entries, total sales for September were at their lowest level of the last two years. The scale of the chart may obscure the degree of deterioration in sales volumes, so here are some numbers:

- September 2006 total sales: 182
- September 2007 total sales: 149
- September 2008 total sales: 119

So the recent level of sales activity is 20% below its level of a year ago, and 35% below its level of two years ago.

Real estate practitioners often combine inventory and sales volumes into a single statistic, by taking the ratio of for-sale inventory to the most recent monthly sales volume. The result is an inventory figure measured in months, i.e., the number of months required to clear the current inventory, assuming that recent sales activity remains constant. Chart #3 shows the number of months of inventory for San Francisco condos.

Chart #3: Months of inventory for San Francisco Condos

Inventory has been trending up recently and is now above six months -- a level that is commonly held to be consistent with a buyer's market. That's a recent phenomenon, which hasn't been seen in the last decade. (You'll have to take my word for that -- I don't have the data at my fingertips.)

To summarize:

- Prices have been trending down for four months, and are now at their lowest level in almost two years.

- Inventory (measured in months of sales) is at its highest level in a decade.

Again, I'm not trying to sound any alarms. But we may be seeing indications that San Francisco is not immune to the nationwide housing downturn. I'll have more to say about this in my next blog entry.