San Francisco has the lowest foreclosure rate of any county in the Bay Area, but that rate is accelerating. Of the 4600+ SF home sales reported in MLS in the last 12 months, sales of REO (bank-owned) properties equaled only 3%, but by last November that had increased to 10%, and as of 2/17/09, they constituted over 15% of all houses and condos currently pending sale. 69% of city REO activity is in houses; 22% in condos; 8% in 2-4 unit buildings; and 1% in TICs. Median sales prices for REO homes -- at $450k to $500k -- are about 60% of the median sales price for the entire city, and though scattered throughout SF, REOs are predominately found in the South/SE neighborhoods stretching from Oceanview to Bayview, and to a lesser degree in SOMA and Bernal Heights.

So far, there has been very little REO activity in areas such as St. Francis Wood, Noe Valley, the Richmond, Pacific Heights and Russian/Nob Hills, though one REO condo sold for over $2m in the Marina, and an REO house in Pacific Heights is now listed for over $13m.

Over 50% of REO listings accept offers within 21 days of going on market, and those sell, on average, at 4% to 5% over list price -- buyers snapping up perceived bargains.

These foreclosure stats do not include homes sold at auction.

Sales of San Francisco homes under $1,000,000 continue at similar rates to last year, however home sales between $1m and $2m have fallen by over 50% and in the ultra high-end over $2m, sales have declined by almost 70%. Thus days-on-market (the time it takes for the average listing to sell) and months-supply-of-inventory (the time it would take for all existing listings to sell at current rates of activity) for the more expensive homes have soared as well. This huge change in buying trends in San Francisco -- a complete flip from a year earlier -- began in mid-September with the global market meltdown and all it entailed, including a significant deterioration in high-end home financing conditions. Buyers who can pay all or mostly cash have the advantage.

Many of the larger new condo developments in the city -- generally located in South Beach, SOMA & Mission Bay -- have recently announced across-the-board price reductions of 15% to 25%. This is a classic example of supply and demand dynamics (inventory increasing as demand declines), exacerbated by the increased difficulty buyers are facing in securing financing. Some of these new projects are facing deadlines with their lenders pertaining to a contractually specified minimum percentage of total units sold by a certain date -- providing significant motivation to offer aggressive pricing and terms.

"There are three kinds of lies: lies, damned lies and statistics."

One hears California home prices have dropped 40% or reads that SF "Metro Area" prices have declined 30%. One recent article insisted some SF districts had experienced double-digit appreciation in 2008. (Sorry, no.) The media loves dramatic (i.e. usually bad) news; some agents deliver only the rosiest view. These analyses might quote median or average prices, dollars per square foot, or values based upon secret algorithms -- each of which may generate different conclusions. They can encompass sales of houses, condos, TICs, resale homes or new construction -- each of which can be dissimilar markets. If the calculation is based on too short a time period, the number of sales is too small to be statistically reliable; if the period is too long, it may mix data from both before and after major market shifts, muddying the current reality.

With statistics, the devil’s always in the details.

Averages are easily skewed by one or two sales higher or lower than usual. The median price, most often quoted, is that price at which half the homes sell for more and half sell for less, and can be dramatically affected by changes in buying trends as well as changes in values. If the market makes a shift to lower-end homes, such as has happened recently (financing difficulties for more expensive homes and increasing foreclosure sales in less affluent areas), the drop in median price is larger than the decline in values. The median sales price for houses in SF has been hammered by the numerous foreclosure sales in Bayview-Excelsior. Which doesn’t mean that Noe Valley or Presidio Heights values have fallen 30% to 40% in the past year.

Location, location: the Bay Area is full of financial microclimates -- for example, depending on location, foreclosure sales range from LESS THAN 1% to MORE THAN 60% of total sales. The statistics for California don’t apply to the Bay Area; Bay Area stats don’t apply to SF; city stats don’t apply to specific SF neighborhoods. There are city neighborhoods, generally in the SE quadrant, where values have dropped 20% to 30% from their peak. Most areas of SF have probably seen declines in the 10% to 15% range. In some neighborhoods, there have been too few sales since September 15th to make a meaningful calculation.

Statistics are generalities and the market is changing rapidly. Ultimately, market value is defined as that price a qualified buyer is willing to pay when the property has been well exposed. Our goal is simply to provide you with straightforward, meaningful statistics. Here are our latest analyses:

• How Much Have San Francisco Home Values Declined
• MSI & DOM Analysis