Lies, Damn Lies, Statistics

Unless you know about the data behind the data, most SF real estate charts probably doesn’t mean what you think they do. For example: Is a condo or a single family home in San Francisco more expensive?

We love data! We wrote a neighborhood by neighborhood guide to 2013 sales prices, crunched the numbers to compare MLS and off-MLS sales, and just today posted our 2014 Luxury Condo building survey. At this week’s sales meeting, the below graph was shared by the management team and I think it is a great example of how a chart usually raises more questions than it provides answers:

Condos vs SFR: Accurate or Not....?
Condos vs SFR: Accurate or Not….?

I had a few quick thoughts when I saw the above chart:

  • What about district 10?
  • How big?
  • BMRs?

District 10 is the most southern part of San Francisco, and essentially is the area south of 280 and north of the county line. It is home to some of San Francisco’s poorest and least-safe neighborhoods. The housing stock in District 10 is also almost exclusively single-family homes – I can think of one big condo project in the entire district….

The chart above also doesn’t take into account that single family homes are often larger than condo homes. Which leads to my charts!

Finally, I wasn’t sure if the above chart filtered out BMR and senior-only condos that have price or other restrictions that would weigh down the average condo price…

In my years of being a San Francisco Realtor, I’ve seen plenty of people actually prefer a condo to a single family home for a variety of reasons, and while I work with plenty of buyers that want a single family, I work with just as many people that are indifferent to condo or single family and a sizable number that don’t want a single family home.

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Based on my calculations, the median price for a condo is slightly higher than Zephyr computed – so those BMR and senior condos had brought the average down by a bit (about $20,000). And look – single family homes are bigger than condos! And look – if you take out district 10, it reduces the number of single family homes by 45, while the number of condos is only reduced by 4. In other words, District 10 is all about single family homes, and often single family homes at the lower end of the price range.
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In absolute price dollars, a single family is more expensive than a condo. But if we look at price per square foot, condos actually are more expensive. Across the city, the median price per square foot for a condo is about $917/square foot while a single family home comes in at $785/square foot.
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When we take out District 10, single family homes get a lot more expensive and condos are unchanged:image (4) On a price per square foot basis, taking out District 10 puts single family homes and condos almost on price parity. But condos still come out slightly more expensive on a price per square foot basis. image (6)

 

Dear TIC Owners, You Just Got Royally Screwed

Update June 13, 2013: I just received a copy of the legislation as amended at the June 11 meeting. I’ll be reading it and making some more posts to flesh out my thoughts in the coming day or two. Thanks for your patience, everyone!

The San Francisco Board of Supervisors voted to approve condo lottery bypass legislation, and you’d think that would be a wonderful thing for TIC owners. But the devil is in the details, and the details – while still murky – appear to screw anyone with aspirations of home ownership in San Francisco that doesn’t have a big pile of Google, Facebook, or Apple stock to help them with their first purchase.

Why Rent? Here's Why...
Why Rent? Here’s Why…

If you are a TIC owner that qualifies for the lottery today, you’re kinda-sorta right to be happy. In exchange for a $20,000 extortion fee per unit, the city will gently shield its eyes with your big fat check and look away while you submit all your paperwork to the city so your building can become a condominium. The congratulations comes with a big fat asterisk, though: tenant’s rights activists just did a pretty good job of screwing almost every TIC owner going forward.

I have nothing against tenants – I’ve been one myself, and I assure you I could share some crazy *** landlord stories with you. But what happened tonight is pretty much a nightmare for owners of TIC units. Why?

  • The Board of Supervisors did not create any “new” lottery spaces for TIC conversion. Instead, they just destroyed the already awful lottery system and replaced it with requirements that appear to double occupancy requirements and make it almost impossible to convert five and six unit buildings to condominiums in the future. If you just bought a TIC in a 3 unit building, I hope you didn’t want to convert it to condo. Because three snowballs in hell have a better chance of becoming a snow-person than you now have of converting your TIC to a condo. 
  • The Board of Supervisors also destroyed an owner’s guaranteed right of conversion because under the new law anyone – yes anyone –  can now challenge a condo conversion for any reason at all. As I understand it, there are absolutely no guidelines or criteria that DPW must use when deciding to disallow a condo conversion. Does your building meet all of the requirements? Doesn’t matter anymore – regardless of whether or not the building satisfies all of the “requirements” –  one bitter person with some spare time on their hands can end your conversion dreams.

*sigh*

This, my dear readers, is why we have steered our buyers as far away from almost all tenancies-in-common for as long as we’ve been in real estate. The odds have always been stacked against TIC owners, and legislation like this is what passes as “progress” in San Francisco.

A Tale of Two Markets in Bernal Heights

505 Anderson in Bernal Heights is a single family home that has been on the market and off the market for the past several years. It provides a great perspective on how the San Francisco real estate market has changed in the past few months.

505 Anderson in Bernal Heights
505 Anderson in Bernal Heights

The home is small – about 750 square feet, doesn’t have parking, but does have two bedrooms, one bathroom, and is a single family home. So, in other words, it has some upsides – single family home. And some downsides – on the small side, no parking.

It was listed in 2010 for $489,000 and then withdrawn after about a month on the market. 2010 = No Sale!

The home was listed for sale again in 2011 for $489,000 and sat on the market for about 3 months before being withdrawn. 2011 = No Sale! 

The Bernal heights home was listed again in the spring of 2013 for $499,000. It was the same house, with only minor changes made since the last two sale attempts (new windows and siding in 2012), and plans had been drawn up showing how you could make a larger bedroom and add one car parking.

In 2013 the home was on the market for about 3 weeks, and after listing for $499,000 it closed for almost 125% of the asking price, closing just over $620,000. 2013 = Over Asking Sale! 

In a nutshell, I think 505 Anderson is a great indication of how the market has changed in San Francisco. Homes that languished on the market in 2010 and 2011 are now being snapped over for substantially over their previous listing prices. And the only substantial difference is that the market has changed – not the house.

What are your experiences with the San Francisco market this year? Can you think of other homes you saw for sale in the past few years that didn’t sell but ended up doing phenomenally well in 2013? Leave a comment below, I’m happy to do some more research and share what I can about the sales.

Board of Supervisors Ready to Hasten End of SF’s Middle Class

According to a blog post over at the city insider blog, tenant’s rights activists have teamed up with the Board of Supervisors to hasten the demise of San Francisco’s struggling middle class. In specific, amendments have been introduced to the condo bypass legislation that would essentially kill TICs as a viable form of ownership for all but the most well-off SF residents with aspirations to own property in the city.

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In particular, Supervisors David Chiu and Norman Yee introduced an amendment that essentially guts the condo conversion lottery going forward, eliminates the ability of five and six unit buildings to condo convert (ever), and increases the occupancy requirements for conversion in 3 and 4 unit buildings.

While I haven’t seen the amendment myself, based on what I’ve read it is a horrible idea that will hasten the end of the middle class in San Francisco. Here’s why:

  • The legislation, as written, already extorts $20,000 per unit (not building) from each owner as a bribe to allow them to bypass the condo lottery. 
  • The amendment proposed will essentially forward-load the lottery, with every building being allowed to convert now taking away the ability of a future building to convert. For example, if 3,200 units took advantage of the legislation (if adopted with the proposed amendment), then for the next 16 years there would be ZERO SPOTS in the lottery for any other units to convert. Why? Because the lottery is currently limited to 200 units/year (not buildings), and for every unit that pays the $20,000 extortion fee, a spot is eliminated in a future lottery. How many spots will be eliminated from future lotteries? Exactly the same number as units that are able to take advantage of the condo bypass.

The Board of Supervisors, and David Chiu and Norman Yee in particular, should be ashamed of this legislation. Home ownership for middle class families and rental properties for middle class families should never be an “either/or” proposition. The Board of Supervisors have pitted property owners against tenants, as though both communities can’t exist together.

If San Francisco has sensible growth and land-use policies, then the Board of Supervisors would never be in this position, and one group wouldn’t have to lose for the other to “win.”

The legislation, if adopted with the proposed amendments, is just one more loud and clear signal that the Board of Supervisors wants middle class families to leave the city for cities and neighborhoods where home ownership isn’t vilified and parents will actually know with some certainty what school their child will attend.

 

Up, Up and Away – February Market Stats

How’s the market in San Francisco? If you haven’t heard, it’s a very busy market right now, with more buyers than inventory. I gathered data and created a chart to help you visualize how rapidly the San Francisco real estate market has changed. Below, you can see the number of transactions reported in the MLS for the months of February 2012 and February 2013. Looking only at single family homes, the number of sales/purchases is down from 165 in February of 2012 to 122 in February of 2013. That’s a decrease of roughly 35%!

Number of Sales for Single Family Homes is down year over year
Number of Sales for Single Family Homes is down year over year

The chart below gives you some more insight into the market for single family homes. You can see that in February of 2012, the median list price for a single family home in San Francisco was $629,000 and the median sales price was just a little bit higher at $633,000. Fast forward 12 months to 2013, and you can see that the median list price is up substantially to $723,500 and the median sales price is up even higher to $800,500. The median size reported for 2012 was 1,404 and for 2013 was 1,412, so I think it is fair to assume that market dynamics are driving this change, not a feature of the underlying homes for sale.

chart_2
The median list and sales price are both up substantially for single family homes in San Francisco

Year over year, for single family homes, the median list price is up about 14%, and the median sales price is up about 20%. Please remember that these statistics are only for single family homes in San Francisco (districts 1- 10), and all data is from the San Francisco Association of Realtors multiple listing service (SFAR MLS). I’ll be taking a look at data for other property types in the next couple of days, so if you aren’t interested in single family home data, check back later in the week for a look at condos, TICs, and lofts.  What are your thoughts?

TIC Lottery Bypass Legislation is a Win/Win for SF

I’ve written about the proposed condo bypass legislation before, but Randy Shaw at beyondchron is at it again, flogging his specious falsehood that approval of the condo bypass legislation would KILL JOBS!

Let’s get something out of the way up-front: I don’t believe that people who can’t afford to own a home are lazy, bad people who deserve to be evicted and forced to live in the backseat of their cars or underneath the bushes of our public parks. When I moved to SF, I was a renter. I can tell you some crazy stories about my landlord and rental experiences. I’ll also be honest: I’m fortunate enough that thanks to a variety of circumstances I was able to afford a home in San Francisco. Again, though, here’s the important thing: tenants are not bad people, and I’m not going to spend time calling them names or describing them in an offensive manner that does nothing to help the public dialog about SF housing. I wish Randy Shaw and his editors at beyondchron felt the same, but since he can’t find honest facts to support his hysteria, he instead relies on the time-worn tradition of name calling.

In just the first three paragraphs, homeowners are vilified as “real estate speculators,” a “small segment of the real estate community” and  a “small constituency with money” – if his divisive language doesn’t turn you off, you can read on to find out that homeowners can’t be progressives but are instead the “Ayn Rand crowd” and “the city’s most Paul Ryan-like constituency.” Seriously?

Name calling aside, the gist of his argument seems to be:

  1. Mayor Lee is the consensus Mayor, who would never ever offer legislation like this, and…
  2. We have brand new supervisors who haven’t had a chance to form opinions or talk to voters about housing policy in the city, but really…
  3. Condo conversions would kill jobs because….
  4. San Francisco would suddenly have too much housing supply to make other development financially attractive…

These arguments are so factually weak that you can almost understand why he resorts to name-calling instead of constructive dialog. Let’s look at them:

1) Domestic Abuser Mirkarimi is just one example of a situation in which Mayor Lee was willing to lead, even when it wasn’t politically popular. While his tenure as Mayor may show him to be more consensus oriented, he’s been willing to take principled stands for what is right when the situation called for it.

2) Housing policy isn’t something new to the political debate in San Francisco. It’s been debated and discussed almost ad nauseum for decades in San Francisco. I have a hard time believing that a recently elected politician hasn’t already been in dialogue with his or her constituents about housing policy. Furthermore, the condo bypass legislation was available in draft form for months before the election, so it’s not like some crazy-policy-from-outer-space just landed in San Francisco. More time is not needed for everyone to get familiar with the proposed condo bypass legislation.

And finally, items three and four: condo bypass legislation will kill jobs and destroy the market for new homes in San Francisco! This argument is so specious that I’m almost embarrassed for Mr. Shaw. It is predicated on false assumptions and ignores the facts behind San Francisco housing demand and supply.

Tenancy-in-Common owners are homeowners, not speculators
A large portion of the people living in TICs will remain in them as condos.  Mr. Shaw’s argument rests on his presumption that immediately upon completion of condo conversion, the owner of every single newly converted condo would immediately sell their home. Common sense (and any level of personal knowledge of tenancy-in-common owners as part of the San Francisco community instead of a divisive stereotype relegating them all to Ayn-Rand-Paul-Ryan-Loving-Really-Rich-Speculators) says that the owner occupants of TICs that become condos are not all going to immediately sell. However, if we want to rely on something more common sense, we can look at the stats.

Tenancy-in-Common owners invested in San Francisco because they didn’t want to leave
A search of the MLS reveals that in 2012, there were about 22 sales of condos that were newly converted from tenancies-in-common. Given that 200 units are allowed to convert per year (not including fully owner occupied 2 unit buildings with a clean eviction history that can bypass the lottery), this suggests that only 10% of newly converted homes would be sold. TIC groups started forming when “entry-level” buyers in SF got priced out of the single family and condo market. It was a (relatively) affordable way for someone to take advantage of the benefits of home ownership (tax deductions, build equity) without having to leave the city. Does it make sense that people who chose the most challenging form of home ownership are suddenly going to flee the city, when they chose to buy a TIC because it was the only realistic way for them to remain in San Francisco?

Condo Conversion Would Lower Mortgage Payments for Many
The benefits to homeowners who convert from TIC to condo financing (which can only happen when the property converts from a TIC to a condo) are that they are no longer jointly liable for a shared mortgage (old-school TIC financing) or for a shared property tax bill (which still exists even with fractional financing). Furthermore, they are all immediate beneficiaries of the incredibly low interest rates that are available to condo owners but aren’t available to tenancy-in-common owners on a group loan (jumbo financing, few lenders, thus higher rates) or fractional financing (boutique financing offered by a few local lenders with higher rates and more restrictive terms).  The homes that remain owner-occupied will be occupied by people who have more disposable income and more security in their homes.  Would the SF economy benefit from a few thousand homeowners who were able to refinance into a mortgage that gave them more disposable income every month? I’d say Yes! Would that kill jobs? I’d say absolutely not! 

San Francisco has Far More Demand for Housing than Supply
San Francisco has a general plan, one part of which is the Housing Element. One part of the document is the Housing Element: Data Needs and Analysis (pdf file) that lays out background data about housing availability, supply, and anticipated demand. It’s a meaty document that was published in 2009, and while the entire document is worth a read, for our discussion I want to highlight a few numbers to show how demand for San Francisco housing far outstrips supply. Case in point:

Accounting for new production, demolitions, and alterations, the City has seen a net increase of over 18,960 housing units – an annual average of almost 2,010 units – in the last nine years [2000 - 2008]. In comparison, a net total of 9,640 housing  units were added between 1990 and 1999 or an annual rate of about 964 units per year. (Page 1.26, Housing Element: Data Needs and Analysis)

From 2000 – 2008, the city added about 2,010 homes per year. It wasn’t enough, even though it was almost double housing creation in the 1990s, which averaged just 964 homes per year!

SF Housing Supply vs Demand

So we’ve got a twenty year track record of producing – at most – 2,010 homes per year. How does that compare to what we should be building to meet demand?

The Association of Bay Area Governments (ABAG), in coordination with the California State  Department of Housing and Community Development (HCD), determine the Bay Area’s regional housing need based on regional trends, projected job growth and existing needs. San  Francisco’s fair share of the regional housing need for January 2007 through June 2014 was calculated as 31,190 units, or about 4,160 units per year. (Page 1.41, Housing Element: Data Needs and Analysis)

Yes, you got that right – according to the SF Planning Department, based on factual research, SF would need to build 4,160 homes per year to meet anticipated demand from 2007 – 2014.

The Condo Conversion Process Creates Jobs & Revenue
The process of condo conversion itself creates jobs for surveyors, construction tradespeople, and attorneys (well, maybe I shouldn’t mention this one) to name just a few. Having personally been through a condo conversion, I can tell you that it is a lot more than just submitting some forms to the planning and building departments. Condo conversions require a professional survey and the appraisal of all the homes in the building that want to refinance into a new mortgage. Condo conversion also requires that the owners correct any items noted by the city during one of three inspections required by condo conversion: a general building inspection, a plumbing inspection, and an electrical inspection. As you can see condo conversion itself creates jobs for plenty of local small businesses.

The condo lottery bypass legislation itself is filled with revenue generating fees that are estimated to create almost $30 million dollars in revenue:

  • $20 million in bypass fees would go to affordable housing
  • $6 million in processing fees for the city’s planning department
  • $2 million in mandated repairs and upgrades for TICs to comply with condo conversion requirements

And for those roughly 10% of newly converted condos that would sell soon after conversion, the city would get additional income from the real estate transfer taxes collected, not to mention that the newly sold homes would be re-assessed at current market value, adding to the city’s annual income from property taxes for years to come.