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Real Estate

A residential and commercial real estate report for the Bay Area

Photo: lucasfoxbcn / flickr

There has been a 96 percent increase in home prices from the trough of the recession until today in the San Francisco-Oakland area. That, according to a study from RealtyTrac, puts this region among the best-performing areas in the country in terms of the housing market recovery.

That means good times for home sellers and big challenges for home buyers, but there is data in the study to please nonsellers, too: The numbers of local homeowners who are underwater with their mortgages has gone down; in this area, 17 percent were underwater, and foreclosure activity has dropped 88 percent from its peak. Those are good numbers, and they are especially so when you consider that the Cape Coral-Fort Myers, Fla. area, which ranks a couple slots higher on the list of top-performing metropolitan areas in the RealtyTrac study, still has 42 percent of its mortgages underwater.

The southern end of the Bay Area also performed well — in fact, the San Jose area did a bit better than the San Francisco portion in terms of underwater mortgages (only 9 percent) while underperforming in terms of price recovery from the trough (70 percent). Both regions were in the top five nationwide in terms of housing rebound.

Fueling the Bay Area’s housing recovery is a number of factors, but one of the biggest reasons is the strong performance of the technology industry. It has provided a steady influx of homebuyers with the means to complete the purchase, and that ends up helping others, as well: cities and the state get higher tax revenues, and stores and restaurants get more customers. But for all of the talk about locals being outbid by cash-paying buyers, the truth is, that RealtyTrac study says 24 percent of San Francisco/Oakland sales are for cash (19 percent in San Jose); it’s a mind-boggling (and frankly suspicious) 70 percent in Cape Coral-Fort Myers.

Put all of those numbers together and you get a picture of the San Francisco market as pretty solid. Add in another bit of information and things look even more interesting: Prices may be beginning to moderate. Trulia.com‘s market analysis for the City shows that the average listing price dropped 2.3 percent from late July to mid-August. (The median sales price did increase during that same timeframe, however, which suggests that the upward pressure remains, however moderated it might be.)

Redfin also reports a slight slowing in the local market — and, all things being relative, “slowing” continues to mean in this context a slowing in the rate of rapid growth, not an actual decline in purchase prices. In Redfin’s listing, San Jose and San Francisco were numbers 1 and 2 respectively in its estimates of “fastest-moving” markets, i.e., where houses are under contract the soonest after being listed. But here, too, Redfin sees the length of time increasing ever so slightly.

Who is buying and where is the buying

Trulia reports that the Marina District had an average listing price of $1,157,059 over the summer, a decline of 36 percent. Keep in mind that there still is a constrained inventory for San Francisco residential real estate, so a small number of sales can have an outsized effect on the averages.

Nationwide, there are similar reports that the housing recovery continues, albeit at a less-frenetic pace. Rising interest rates are likely playing a role, according to various experts, even though they are still quite low by historical standards.

One type of buyer that is not jumping in with both feet is foreign buyers. With home prices spiking in San Francisco and foreign currency fluctuations playing parts, foreign buyers looking to pick up U.S. real estate as an investment have backed off — significantly in our area. Keller Williams Realty broker Kevin Kieffer told Thomson Reuters that purchases by foreign buyers in this area have dropped 30 percent in the past few months.

That makes those tech buyers even more important to sustaining the strong San Francisco market.

If this trend of a moderation in a continued housing rebound continues, it could be the best thing to happen to the real estate market and the economy. It will stop pushing everything out of the reach of only the wealthiest (or cashiest) buyers, and it will reduce the likelihood of an overheated market leading to another crash.

Who can sell — big

In September, RealtyTrac released another interesting report, the “RealtyTrac Home Equity & Underwater Report.” It features a color-coded map of the entire country on a county-by-county basis, showing how high a percentage of homeowners in each county has reached at least 50 percent equity in their homes.

For perspective, about 7.4 million homeowners nationwide have a minimum of 50 percent equity in their homes; that is about 16 percent of homeowners with mortgages. On the RealtyTrac color-coded map of counties, green represents the counties with a high percentage of equity-rich homeowners; red is for those with a low percentage (and other colors for gradations of in-between amounts). The Bay Area, including San Francisco, is almost solid green. In San Francisco, 41 percent of the homeowners have at least half of the value of their home in equity; the rate is 37 percent in nearby San Mateo County; 35 percent in Santa Clara County; 32 percent in Marin County; and 20 percent in Contra Costa County.

By comparison, a grand total of 0 percent of the homeowners in Berrien County, Mich., have reached the 50 percent Club. The same in Orange, Vermont. RealtyTrac notes that 10.7 million residential homeowners in the nation owe at least 25 percent more on their mortgages than their properties are actually worth, and another 8.3 million are slightly underwater or slightly above water.

So what do these numbers mean to homebuyers and sellers here in San Francisco? Despite the large amount of red on the map, RealtyTrac quotes Laffey Fine Homes International CEO Emmet Laffey as saying that the number of homeowners with negative equity is declining, and that’s good for the housing recovery, because “negative equity will always hamper the housing market from making a strong recovery.”

Further, RealtyTrac Vice President Daren Blomquist said, “Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory for homes for sale in the coming months. Homeowners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence are on track to regain enough equity to sell before 2015 if home prices continue to increase at the rate of 1.33 percent per month that they have since bottoming out in March 2012.”

So here in (relatively) equity-rich and plain old rich San Francisco, that means we have a relatively higher percentage of people who can, if they choose to cash in in this market and take equity with them, add their properties to the for-sale inventory.

The commercial scene

On the commercial real estate side, San Francisco stands out nationally with a very tight retail scene. According to the Commercial Real Estate Outlook from the National Association of Realtors (NAR), San Francisco retail vacancy in the third quarter was is a miniscule 3.9 percent; its multifamily vacancy rate was even lower at 3.1 percent; office was 13.3 percent; and industrial was 11.2 percent.

NAR is forecasting retail vacancy rates to decline nationally from an average of 10.6 percent now to 10 percent in the third quarter of 2014; that can only mean a continued increase in retail rents and good times for retail real estate investors. Vacancy rates in the other categories of commercial property are also expected to stay strong, decreasing slightly for office and industrial, and a very slight increase for multifamily.

Office leasing will certainly be helped by the aforementioned booming tech industry in the Bay Area. CBRE Group, a major commercial real estate services and investment firm, recently identified San Francisco — along with San Jose, Boston, Seattle, and Washington, D.C. — as having the highest “tech talent” ratings in the country.

“Live-work-play environments,” particularly like our South of Market district, were said by CBRE to be playing a big role in attracting company sitings. “Mixed-use strategies in that market were executed before the submarket was ‘priced-in’ and many early real estate investors in SoMa outperformed the overall market,” according to CBRE.

All of the info here pretty much sums up why San Francisco remains such a strong real estate performer: Lots of high-earner buyers for private homes, booming local business climate for commercial leasing, and an equity-rich set of homeowners.

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John Zipperer is the former senior editor for Apartment Finance Today and Affordable Housing Finance magazines. E-mail: john@marinatimes.com