A confluence of factors have transformed the San Francisco luxury home market from simply one of the country’s most sought-after dwelling areas to something larger—a mega-market that is reflective of the nation’s potential economic growth, the continued predominance of the tech sector within this equation, and the affluence of motivated, young innovators who are bringing our economy out of the depths of the recession.
After seeing a dramatic 2013 first quarter uptick in San Francisco sales prices for the top ten percent of properties sold in terms of value (thus classified as “luxury”), McGuire continued to see prices within our inventory rise through the second quarter, ending in a pattern of the average sales price for this category of homes nearly doubling year-over-year. More specifically, the average sales price for the 68 San Francisco luxury properties we brokered in the second quarter of 2013 was $4.05 million, up 8 percent from the $3.762 million we saw in the first quarter this year and up, as mentioned, an astounding 96 percent year-over-year from the $2.066 million average we experienced in the second quarter of 2012.
Other Bay Area counties saw larger quarter-over-quarter ratio increases for luxury property values, but of the four regional areas we serve—also including the East Bay, North Bay and Mid-Peninsula—San Francisco outperformed each of these other markets in average sales price, price per square foot, and most significantly, that massive year-over-year increase.
So what were the factors behind this unprecedented increase in valuation? That question begs speculation from both buyers and sellers who’ve attempted to make their mark here over the past year, and while the answer is extremely multifaceted, examining its components can give potential San Francisco luxury home owners a clue into how the cogs and gears of this well-oiled selling machine function.
First off, bidding wars abound in the San Francisco market, where inventory levels have been frustratingly low for many buyers. In fact, McGuire-brokered San Francisco homes (both luxury class and non-luxury) that did not require a price change in the second quarter sold at 13 percent above asking price. With the first quarter’s luxury home index at its highest value since 2008, according to the San Francisco Business Times, it’s no wonder that opportunistic cash buyers dominated the market in the second quarter, which also fed into the extremely low days on market (DOM) for San Francisco luxury properties. The 2013 second quarter DOM was at 32, down 36 percent from the DOM of 50 during the first quarter of the year and down 20 percent from the DOM of 40 year-over-year.
All this begs another question: Who are these buyers that are, for all practical purposes, walking into a $3 million open house with a briefcase of cash and moving in shortly thereafter? The continued growth and prosperity of the San Francisco and Silicon Valley tech sectors, and the young professionals excelling in this field who desire a city abode and lifestyle, can in no way be discounted.
“Tech in general, whether located in Silicon Valley or San Francisco is definitely a driving factor for San Francisco homes; both direct and indirectly,” explains McGuire Vice President of Marketing and Operations, Alex Buehlmann. “Many top executives from Silicon Valley firms live in San Francisco and all of the major firms have bus/shuttle services to-and-from the city. This allows their highly-compensated, young employees to live in San Francisco and enjoy the benefits of living in an urban environment, while easily commuting to the Peninsula. And while employees at the tech firms are certainly snapping up high-end properties, the support and service industries are benefiting as well, which results in an overall boost in consumer confidence. We saw similar trends in 1998-2001.”
In terms of localized economic growth and its inherent effects on the luxury market, the city of San Francisco is largely to thank. The so-called “Twitter tax breaks” that have temporarily terminated the 1.5% city payroll tax that large companies operating in the Tenderloin and Market Districts would have to pay are no doubt incentivizing companies to stay in the area, as well as relocate here. And the corollary effect of the tech boom on the housing market is simple economics.
At McGuire, we see several takeaways in terms of how this most recent report should influence the San Francisco luxury home market moving forward. First, while we advise all prospective buyers in this market to proceed with caution, every indicator points to this market continuing to be highly in-demand and salable for the foreseeable future. Second, while no easy feat, this upwardly mobile market is not impossible to break into, and buying tactics such as all-cash offers—aided by the expertise and direction of a local agent—continue to see success. Lastly, let us express how excited we are to see this market thrive in such an unprecedented fashion, and it is with a great optimism, rooted in tangible success, that we look forward to being active participants in the continued success of this phenomenal real estate sector.
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