Too Soon to Call an Upturn for San Francisco Housing

There has been some buzz recently about a possible upturn in the San Francisco real estate market. Last night, KPIX ran a story featuring a house that received 42 offers. Hank Plante (the KPIX reporter) is a friend of mine, so I hope he won't take offense if I respond to the story.

During the first two months of 2009, a total of 319 houses, condos, and TIC's were sold in San Francisco. That's 40% lower than the total for the first two months of 2008. Clearly, the housing market has slowed dramatically. But it hasn't ground to a halt.

Who's buying? Considering the state of the credit markets, the current crop of buyers is likely to have unusually strong financial resources. On the other side of the coin, the supply of for-sale housing has been tightening for years, so those strong buyers are competing for a relatively small number of homes. We shouldn't be surprised, therefore, to see enthusiastic bidding for good deals.

This deal appears to have been a good one indeed. The house in question, 555 Edinburgh, was listed at $459,000. The median sale price among the 16 comparable houses that I identified was almost $100,000 higher, at $555,000. Only one of the comparable houses sold for less than $459,000, and that house did not have parking. (In case you're curious, the comparables are all 2-3 bedroom, 1,000-1,500 square-foot houses, located within 1/2 mile of 555 Edinburgh. All of them have been sold since October 1st of last year.)

A $96,000 discount on a half-million dollar house will bring buyers out in force, especially when we're talking about strong buyers competing in a tight housing market.

I want to keep this blog focused on real estate and economics, but this particular situation calls for photographical evidence. Here are two photos of 555 Edinburgh:


...and here are two photos of 350 Edinburgh (one of the comparable houses), which sold for $486,000 on November 5, 2008:


If even one buyer was willing to pay $486,000 for 350 Edinburgh, we shouldn't be surprised when 42 buyers turn up for a chance to buy 555 Edinburgh for only $459,000.

One last comment: If you're thinking that strong bidding for 'good deals' is a sign that the housing market is about to turn around, keep in mind that sales volumes in the East Bay have nearly doubled in the last year, driven by sales of heavily discounted bank-owned homes. The people who bought those homes may indeed have gotten good deals, but that hasn't helped the rest of the market. Median prices in the East Bay have fallen steadily over the last year, and are now down by at least 30% in every East Bay county.