Single-family home values within the San Francisco MSA ticked up 0.4 percent from November to December and are running 9.3 percent higher on a year-over-year basis, according to the latest S&P Case-Shiller Home Price Index. At the same time, local condominium values slipped 0.5 percent from an all-time high in November but remain 10.8 percent higher than at the same time last year.

Keep in mind that while the aggregate index for San Francisco home values has gained 68 percent since early 2009, it remains 9.6 percent below its 2006 peak.

The index for the bottom third of the market gained 0.3 percent in December and is running 12.7 percent higher than at the same time last year; the index for middle third of the market gained 0.5 percent in December (up 9.2 percent year-over-year); and the index for the top third of the market gained 0.1 percent, up 9.4 percent versus the same time last year.

S&P Case-Shiller San Francisco Home Value Index

According to the index, single-family home values for the bottom third of the market in the San Francisco MSA are back to just below May 2004 levels (29 percent below an August 2006 peak); the middle third is back to February 2005 levels (11 percent below a May 2006 peak); and values for the top third of the market are back to the all-time highs they hit in June, 4.0 percent above their August 2007 peak.

Condo values in San Francisco slipped 0.5 percent in December, but remain 10.8 percent higher on a year-over-year basis and 5.5 percent higher than at the previous cycle peak reached in October of 2005.

S&P Case-Shiller Condo Value Tiers

For the broader 10-City U.S. composite index, home values were relatively unchanged in December (up 0.07 percent). And while the composite index is running 4.3 percent higher on a year-over-year basis, it remains 17.0 percent below its June 2006 peak.

From the Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, David M. Blitzer, with respect to the big picture being painted:

The [national] housing recovery is faltering. While prices and sales of existing homes are close to normal, construction and new home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession.

The pace of existing-home sales in the U.S. dropped to a nine-month low last month.

Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).

Comments from Plugged-In Readers

  1. Posted by Hitman

    Unlike the 2007, prices are supported by real wages and not just hot-potato financing by banks. When prices are hitting new highs, the trend is your friend. As prices rise so will rents. As rents rise so will evictions.

  2. Posted by eddy

    My theory is that so long as the low/mid/high tiers are all moving in a coordinated manner the market is sustainable. It seems evident that when the markets diverged wildly in 2001 there was the firsts signs of trouble. Seems they are all in synch now so things feel okay to me. In as much as the market will rise and fall in step rather than see one tier get blasted. Basically what @Hitman is saying holds true in my opinion.

  3. Posted by BayviewSF

    New housing construction is booming in the city of SF while it is weak nationally.

    The nationally weak new housing starts could be due to the delay of millennials to buy a home. Does SF also have the same issue of a dearth of millennial buyers?

    • Posted by San FronziScheme

      National weak new housing is also probably due to the fact that overall we haven’t fully churned though the overbuilding of the mid-2000s.

      At the other extreme end of the spectrum, in LV, NV, they are still looking for warm bodies to fill all those empty condos/houses from the mid-naughts.

  4. Posted by gold_rush_town

    San Francisco has lots of job growth. The parts of the country that haven’t caught up since the credit crisis don’t have job growth to offer people (millenials or otherwise). Add a layer of much tighter credit standards and you have divergent regional RE markets.

    Wells Fargo will lend blindly to a couple making $300K who want to buy a new condo in Soma. There is no reason to lend to a similar couple working part time jobs in suburban Dallas.

    Only the city can layer on enough regulation to protect entrenched constituencies will the city really be able to shut down job growth and protect the status quo with lower prices. By golly they’ll try.

    • Posted by Anon

      What’s wild about the Wells scenario you suggest? Twenty percent down, good or great credit, decent income … what’s wild? the condo price?

      • Posted by shza

        His/her suggestion was exactly the opposite. There’s nothing wild about that scenario. The “wild” scenario that happened in 2007 but isn’t happening now is the loan-to-part-time-suburban-Dallas-workers scenario.

        • Posted by JR "Bob" Dobbs

          Exactly. And, of course, we saw plenty of that in SF too from 2005-2007 – the million dollar, no-down loan to a bartender to buy a condo he could never afford. 20% down loans to people with sold and steady income are now happening anywhere. It’s just that there are several places where you have a lot of buyers who meet that standard (like SF) and other places where there are few who do,

        • Posted by heynonnynonny

          How many years of negative real interest rates does it take to qualify as a wild scenario?

          • Posted by EcceMorons

            Who knows? Maybe 20 years from now, people will be saying, “Do you realize that banks used to PAY you interest if you deposited money with them? What was up with THAT?” 🙂

          • Posted by JR "Bob" Dobbs

            Might not take 20 years – central banks in Switzerland, Denmark and Sweden are already imposing negative interest rates. If negative interest rates ever come to pass in the U.S., it will be a colossal policy failure as the circumstances that make this necessary are easily avoidable.

  5. Posted by anon

    “Supported by real wages”….”lots of job growth”…

    Yeah, until the vast majority of the startups evaporate and we experience Exodus 2.0.

    As Sir John Templeton so wisely stated: The four most expensive words in the English language are “This time it’s different.”

    • Posted by Anon

      the vast majority of startups are currently already evaporating weekly, monthly, daily, and have been doing so for a few years now. that’s not really what this is about. I think you mean to say, “wait until VC begins putting far less money into startups than it is now” right?

    • Posted by Hitman

      Maybe you are right but I offer an anecdote from earlier in the week: a young couple with 2 big stable incomes living in a rent controlled apartment told the Hitman they want to continue living in the city but can’t afford to buy there. Instead they buy rental property in Alameda county and continue to enjoy SF rent control. They are smart cookies indeed! As for me, I own a few SF properties and I ain’t selling because I have seen this movie before.

    • Posted by San FronziScheme

      There’s some truth to that, but not entirely. Yes there’s a lot of hyperventilation and a lot of high expectation. But I’ll ask you to do a very simple experiment: Empty your pockets on a table. Now imagine yourself in 1995 and virtually do the same thing.

      Compare the 2. The big difference: the huge majority of us now own a powerful computer permanently connected that handles almost all aspects of our non-physical lives. We use it to organize, entertain, schedule, pay, travel, keep in touch, work, provide an opinion, shop, etc, etc…

      All of this didn’t happen overnight. It came from the locked-in profits from all the waves of entrepreneurs, engineers, marketers, financiers that tried, failed, tried again, failed again and sometimes succeeded. Every wave added more expertise, more insight, more experience on the top of the previous one. I was a wave 1 dotcommy who went through 2 [dotcoms] before going through an IPO. I work for a tech structure that creates wealth selling expertise, all built from the accumulation of experience. Everyone around me has been in a failed company or 2 at some point in the past. This is why the Bay Area is so valuable.

      • Posted by Not Bashing

        And that’s why it will remain so, relative to the rest of the country. Not saying there won’t be another bust – there will be at some point. But there will also be another boom – which would be a much more rational way to use the “this time it’s different” quote. Hold or sell now, buy in the next bust, rinse and repeat.

      • Posted by JR "Bob" Dobbs

        Yeah, I was in the middle of Dotcom 1.0. Then the problem was that the vast majority of new companies were a complete joke. Remember, there were something like 2-3 tech IPOs every week and most had ridiculous business models that were never going to generate any profits – yet they rose by 2X, 3X, and more after their IPOs. It was nothing but tulip bulbs. No surprise that crashed, and loads of new 49ers then left town.

        But this recent wave is much more grown up. New accounting rules have made it harder to fudge the books. VCs are holding on to far more of the companies they fund and not funding total garbage. And these companies are (generally) making real money. Sure, many go belly-up before an IPO (generally when they are still pretty small), and there will be bankruptcies among some bigger firms (Twitter and Salesforce cannot go on forever losing more money the bigger they get – they will either turn the corner or disappear). But there are now many small, medium, and big companies that have strong, profitable business models, and SF and SV are right in the middle of it. I don’t see anything like the post-2001 crash in the cards. In the long run nobody can predict anything like this, but the coming years look great for this area. That doesn’t mean sky-high home prices won’t plateau or even fall a bit, but I would not bet on a crash.

      • Posted by Parse Twee

        “The big difference: the huge majority of us now own a powerful computer permanently connected that handles almost all aspects of our non-physical lives. ”

        Yeah and one company, Apple, makes nearly all the profit on those high margin devices. There’s a huge number of me-too startups in low margin spaces: food delivery, car share, front ends to Amazon/Google/Microsoft’s cloud storage, app based store loyalty cards,… Some of those spaces probably get one big winner, maybe one hanger on and the rest hit the grave. The winner’s win big and that’s why VC’s take those bets, but people wise, there are lots and lots of loser that get zilch.

        “the vast majority of startups are currently already evaporating weekly, monthly, daily, and have been doing so for a few years now. that’s not really what this is about.”

        It’s really a heard mentality thing. In good times, fund it all cause you don’t want to miss out on a potential winner. But when things turn bad, cut quick and cut deep.

        No coincidence that Exodus 1.0 was so wide, fast and deep. Boom or Bust. Been that way since the gold rush.

        “As Sir John Templeton so wisely stated: The four most expensive words in the English language are “This time it’s different.””

        No truer words have been spoken.

        • Posted by San FronziScheme

          Yes, but the results have been “capital” in the wider meaning of the word. Tangible capital like residential/commercial RE, infrastructure. Knowledge capital which is obvious by the large number of mature knowledge workers in SF. Entrepreneur capital, and of course cumulated wealth.

          All these accumulations are laying the ground for the next wave, the next escalation, more mature and more profound.

  6. Posted by San FronziScheme

    autocorrect fail: dotcom became doctor… Darn technology.

  7. Posted by EBGuy

    Three words: mobile ad revenue.

  8. Posted by Booger

    I will share why Silicon Valley and San Francisco are unique. Moore’s Law!

    Silicon Valley has been investing in computing for a very long time. It all scales and accelerates here. We have a multi year advantage largely thanks to Steve Jobs.

    As Apple and Google both scale exponentially in new industries, they accelerate. Other companies can’t scale because they don’t have the platform or ecosystem upon which to stand.

    Apple, Google and Facebook will vaporize the competition and I think that once people better understand Twitter, it will also be a force of nature. Add Salesforce and Oracle and you have it all.

    We are very insulated from risk for these reasons. We can’t be caught!

    • Posted by Parse Twee

      “I will share why Silicon Valley and San Francisco are unique. Moore’s Law!”

      Moore’s law has been around for 50 some years now and there’s been heaps of ups and downs since then.

      “We are very insulated from risk for these reasons. We can’t be caught!”

      That thought process is exactly why there’s wild excess during boom times. Technology is the way forward, but it comes with heaps of risk. As we saw with dotcom 1.0, slapping a banner ad on a bad business model doesn’t make it a good business. And this time around slapping a pinky sized banner on an app or providing a service in the cloud won’t save otherwise flawed ideas.

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