Beige Book Bullish on San Francisco Housing Market

Vicksburg Street row houses
Vicksburg Street in San Francisco. Allan Ferguson.

Summary: Anecdotal reports gathered by the Federal Reserve support the notion that San Francisco’s residential real estate market is in a recovery phase.

The Federal Reserve’s Beige Book came out last week. Officially known as the ‘Summary of Commentary on Current Economic Conditions,’ the Beige Book is an economic snapshot published eight times a year. It covers all 12 of the Federal Reserve districts, including San Francisco.

The Beige Book gathers input from “key business contacts, economists, market experts, and other sources,” and provides a general consensus based on those views. Here’s what it had to say about the San Francisco housing market, in particular.

Strong Demand, Low Inventory to Boost Sales Activity

The Federal Reserve’s ‘key contacts’ — bankers, economists and analysts, for the most part — seem to be feeling bullish about the San Francisco real estate market. They pointed out that “Home demand in the District showed continued signs of improvement … the sales pace for new and existing homes picked up further in many areas.” They also predicted strong sales activity over the next few months, or at least until the next Beige Book comes out.

Of course, you don’t have to be an economist to see the recovery in San Francisco’s housing market. The signs are clear and plentiful. Earlier this summer, I wrote that San Francisco home prices had already hit bottom and begun to climb. So while the Fed’s report is not particularly eye-opening, it is helpful nonetheless. It supports the notion that the Bay Area is firmly rooted in a real estate recovery. Another drop in the bucket, if you will.

Median Sale Price Hits 4-Year High in Bay Area

According to a recent report by the real-estate data firm DataQuick, the median sale price in the Bay Area reached its highest level in more than four years last month. In September 2012, the median price in the nine-county Bay Area climbed to $429,000. That’s a 17.5% increase over the same month last year, when the median was $365,000.

The median sale price is the midpoint at which homes are sold. Half of the homes sold were purchased above that price, while the other half were purchased below it. It is one of several metrics used to track housing trends.

Of all nine counties in the Bay Area, Contra Costa County had the largest gain. The median sale price in Contra Costa climbed 27% over the last year or so, from $252,000 to $320,000. Major cities in this county, based on population, include Richmond, Concord and Antioch, California.

The median price for homes sold in San Francisco County jumped by 21.4% during the same 12-month period.

Housing Shortage: Next Big Thing in San Francisco Real Estate?

The Federal Reserve report also touched on a significant trend taking place across the Bay Area — inventory reduction. The number of homes for sale has fallen across the board, but especially in the lower price ranges. For instance, within the $313,000-and-below price range, inventory has fallen by 53.2% in the San Francisco area. Nationally, housing inventory has fallen by only 15.3% in this price range.

The message is clear for San Francisco home buyers: Good luck finding a home in this price range, and don’t be surprised if you get outbid by an investor with cash in hand.

And speaking of investors…

Several of our real-estate industry contacts have confirmed a rising trend. It seems that many investors are expanding from a ‘fix-and-flip’ business model to a ‘fix-and-rent’ business model. Investors are purchasing low-priced foreclosure homes, in particular, and then renting them out as income properties. While this practice is not new, it does seem to be growing in popularity. It has also contributed to the major reduction in inventory we’ve seen across the Bay Area.

There is growing demand among ‘regular’ home buyers as well, those who plan to live in the homes they buy. Job growth and record-low mortgage rates are bringing more buyers into the market. San Francisco’s unemployment rate fell to 7.4% this summer, down from a high of 10.1% in January 2010.

At the same time, mortgage rates are still incredibly low. The average rate for a 30-year fixed mortgage hit a 41-year low earlier this month, and is only slightly above that today. These and other factors should sustain housing demand well into 2013.

Disclaimer: This story contains predictions for home prices, home sales, and other aspects of the San Francisco real estate market. This information has been provided for educational purposes and should not be viewed as financial advice. We make no guarantees about future conditions within this housing market.