Altos Research Fact Check: San Francisco’s Housing Supply is NOT at a Two-Year Low

September 17, 2009

by Scott Sambucci

1 comment

Know that uneasy feeling you get when you ask a real estate agent – “Hey, how’s the market in my town?,” only to have them reply with – “Oh! It’s fantastic! What a great time to buy or sell!”   That’s kind of how I felt when I read this press release about housing inventory levels in San Francisco by the San Francisco Association of Realtors and Rosen Consulting Group.  Check out a couple other news services and blogs that picked up this release with the same headlines:

San Francisco Housing Inventory at Two-Year Low, Realtors Say (HousingWire.com)

San Francisco Real Estate Inventory at Lower Point in 2 Years (NuWire Investor)

Most agents are excellent professionals (we know because we work with thousands of them every day), but the few that take the Pollyana approach are just so darn noticeable.  I understand the Board’s motivation to spin out good news in the housing market, but I have a few issues with the way that the market conditions were reported in their press release.

  • Why compare absorbtion in August 2009 (a.k.a. “month’s supply”) to November 2008?  Regardless of market conditions, choosing these two months to determine the market’s health seems as arbitrary as comparing San Francisco weather in these two months.
  • One month’s activity isn’t a trend.  Ask any agent that’s a had a record month before – it doesn’t guarantee the next month’s success.
  • Inventory levels are, in fact, not at a two-year low.  Here’s the historical active inventory trends for San Francisco since 2006:
90-day rolling average of on-market properties in San Francisco since 2006

90-day rolling average of on-market properties in San Francisco since 2006

(Socketsite, a site that specifically covers San Francisco, is also showing that housing inventory is right at levels from recent years.)

The real information in what the SF Board is reporting is that the rate transactions rose in August because of lower prices levels. This is stated later in the release – “But prices declined in August to $705,000, down 9.7% from July 2009 and down 14.5% from August 2008.”. Perhaps I’m being persnickity here, but it’s these types of headlines that make life difficult for the local real estate agent trying to explain to a seller why they are recommending a price reduction or working the delicate conversation in a listing meeting about setting the price lower than the seller is wants.

It is clear that more homes are exiting the market since the Spring, hitting 2007 levels for single-family homes and showing a similar trend in the condo market.  That’s a good sign, but these trends exhibitied a downward tick in the two most recent weeks (which are also the first two weeks in September):

Numbers of weekly housing exits in San Francisco since 2006

Numbers of weekly housing exits in San Francisco since 2006

Ask prices for single-family homes climbed since their trough in January 2008, but have started to fall in recent months.  During Fall 2008, prices continued to rise steadily.  Condo ask prices are showing a definite downward trend throughout since July 2008:

Median List Prices in the San Francisco Housing Market since 2006

Median List Prices in the San Francisco Housing Market since 2006

New listings provide immediate visibility about a market’s directional trend.  In San Francisco, new sellers entering the market since April have been doing so at lower and lower price points which indicates that new sellers aren’t particularly bullish about the market’s direction:

Median List Price of housing inventory entering the San Francisco market

Median List Price of housing inventory entering the San Francisco market

Ilse Cordoni, president of the San Francisco Association, states in the release that the “extended times between contract signings and closings in the current market, have made sales prices a lagging market indicator.” We couldn’t agree more.  That’s why we look at the active market prices to see how sellers are adjusting to real-time market demand activity.  Here’s the good news – the number of active listings with price reductions is declining, an indication of an improving market:

Percentage of Active Listing with Price Reductions (San Francisco, CA)

Percentage of Active Listing with Price Reductions (San Francisco, CA)

Additionally, a second look at the chart above displaying the price of new listings shows that the rate of decline is slowing over the last couple of weeks. San Francisco showed some positive signs in August, but not because “housing inventory is at a two-year low” as headlined in the press release.

So that’s our perpsective about what’s happening in San Francisco – prices are down, transactions are up, and but the press release headlines seem imprecise for our taste.

{ 1 comment }

Bob Gibbs September 22, 2009 at 10:43 am

Thank you for clearing this up. I consider myself very optomistic and always look for the good points of any situation, but taking a truly honest and logical approach to reporting statistics is always the best practice. People (agents) should not be afraid of a little bad news. Buyers are buyers and they will make up their own minds. The worst thing, or perhapps the best thing, to happen is for a buyer to make a decision based on questionable information then hold the provider of that information accountable.

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