News & Research Archive

Pulse Of The Market (Pulse 61 - Got the Picture?)

Jul 04, 2008

The front-page San Francisco Chronicle headline on June 25, 2008 read “Bay Area Home Prices Take New Hit.” The article states that the price of a typical single-family home in the San Francisco area plunged 22.1 percent compared with a year ago. Wow!

This is where it pays to be an educated consumer. Remember, it is the context that gives meaning to the text! So let’s dig a little deeper......

The casual reader may not realize that the home index cited, the S&P/Case Shiller Index, includes Alameda, Contra Costa, Marin, San Francisco, and San Mateo counties, not just San Francisco proper, and relates only to one type of residence, single-family homes.

I want to believe that the intention of the article is to give readers a sense of the market and not just to create drama to attract attention.

Here are a few data points that depict a very different picture of the San Francisco market:

  • For the first six months through June 2008, average condominium prices are up 6.9% year-over-year while average single-family home prices are up 2.1% (no prices taking a hit here).
  • Last year, 2007, when the rest of the country’s housing market was taking a terrific beating, average condominium prices in San Francisco appreciated 6.8%; 9.2% for single family homes! Wow again.
  • The bust, which was pretty severe, led to only a 4.9% reduction in average condominium prices in 2001 (3.0% for single-family homes), and a 1.2% reduction in 2002 (0.0% for single-family homes). Since 2001, there has been appreciation of 45.1% overall for condominiums and 60.4% for single-family homes, and an average annual appreciation of 7.5% from 2001 to 2007 for condominiums and 10.1% for single-family homes.
  • Since 1987, the average annual price appreciation for San Francisco condominiums has been +7.3%; 8.6% for single-family homes.

Clearly, this is a different picture than that portrayed by the Chronicle, not that there is anything wrong with the Chronicle article’s data. The context and presentation just paints a different picture.

Sure we have a foreclosure or two among us, but the current and long-term (read last month’s Pulse 60) residential trends in San Francisco are very positive. Reminder – people don’t trade homes on a daily or weekly basis like they do stocks. And they don’t live in regions, they live in particular neighborhoods. So let’s get a bit more clear.

Within San Francisco, South of Market St. sales are not very rosy. Prices on re-sales are under pressure both because there are a lot of re-sale units on the market and because buildings built in the 1990’s and early in the 2000’s are under competitive pressure from the brand new developments. Scratch a developer and he will probably tell you that sales are a bit slow i.e. below target. Of course, there are many condominiums to choose from and the credit storm is raging at hurricane intensity, the latter affecting everyone.

San Francisco’s residential condominium developers (there aren’t any single family-home developers here) are doing today what they have been doing for 10/15 years: delivering well appointed sales centers, mood-indulgent web sites, classy brochures, and captivating advertisements. All very nice.

This has worked in the past when it was a seller’s market, but now it is a buyer’s market. And the world and the marketplace have changed in other ways as well, while many of the ways that we do business have not.

The world has changed dramatically in the last 10/15 years, notably with accelerated globalization: and in the last 12/18 months with an intense credit melt down across the economic landscape.

What is not being addressed by developers is a pervasive "unease" that is being experienced by almost all buyers. It is an unease brought about by (1) an overabundance of information on the Internet, so much so that it takes a lot of time, effort, and patience to make sense of what is available, not to mention organize it to reach some meaningful conclusions (2) an overabundance of choices (50+ SOMA buildings to choose from), and (3) a much more stringent lending climate where lenders are crossing their T's and dotting their I's.

All of which lead to a concern and hesitancy among buyers. While buyers want to buy, they don't want to make a grievous mistake. This unease most likely applies to all buyer groups across the board, and unless someone addresses these issues, it is likely to persist for some time.

Neither developers nor their sales and marketing teams are speaking to this deep-seeded concern. It is affecting all parties to the transactions – both buyers and sellers. It is impacting not only San Francisco but every major city where re-urbanization is taking place and in resort communities across the country as well.

There is an old adage: Success always comes when preparation meets opportunity.”

Do I smell an opportunity here? Stay tuned.

PS: I recommend reading two recent newspaper articles -
Wall Street Journal (June 17, 2008) – “Suburbs a Mile Too Far For Some” by Jonathan Karp
New York Times (June 25, 2008) – “Rethinking the Country Life as Energy Costs Rise” by Peter S. Goodman


Written by: Malcolm E.A. Kaufman


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Top Producer at McGuire Partner. He refers you to his website,, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.

Contact Us

Name must not be empty
Please provide a valid email
Message should not be empty


TCN Worldwide