Tuesday, June 29, 2010

Are San Francisco Home Prices Really Up 19%

The Case-Shiller S&P home price index released today says San Francisco home prices are up 19% over the past 12 months. Earlier, Dataquick reported that median home prices were up 20% in San Francisco, but they warned that this was deceptive because it was influenced by the mix of what was selling.

The May median’s 20.1 percent annual gain reflects several factors, including the decline in foreclosure resales, price stability and modest price pressure in some areas, and the shift toward more high-end sales. Activity has picked up in the higher-cost areas in part because distress has increased over the last year and sellers have become more motivated and realistic.

Viewed another way, zip codes in the top one-third of the Bay Area market, based on their historical prices, accounted for 35.3 percent of existing single-family house sales last month – the highest in two years. Last month’s level was up from 31.6 percent in April and 27.2 percent a year ago. Over the past decade, the top third of the market averaged 32.1 percent of total regional sales, while the low point was 17.9 percent of sales in January 2009 and the high point was 43.5 percent in June 2007, just before the credit crisis began.

Case-Shiller is a quality adjusted, repeat sales index so it shouldn't be affected by this change in the neighborhood mix of sales, yet it still shows a huge change that parallels the median.

Zillow and Corelogic have other quality-adjusted price indices, and both show San Francisco prices are up about 6% over the past 12 months. That sounds far more realistic, and consistent what Dataquick is saying above.

It makes me wonder about the accuracy of the Case-Shiller index which I had thought was the best, and wished were available in the Valley. Maybe Zillow and CoreLogic are better indices, and they are available in the Valley.

In Sacramento, Zillow says home values are down 4.1% over 12 months, and CoreLogic says a 0.2% decline; but the median price is reported to be up 6% because of similar changes in the mix - more sales in higher priced areas and fewer foreclosure sales.


  1. I'm pretty suspicious of all the home price indexes, except perhaps on a national level. Houses are simply not fungible goods, sales volumes are very erratic, and too many irrational factors go into one's decision to buy a particular house.
    Housing prices are always correlated to regional incomes; and, to a lesser extent, mortgage rates. The Bay Area, for all its problems, still attracts a lot of high wage earners. For really rich people (and SF has quite a few) price is not the ultimate determinant; they know they will never spend all their money, and prefer not to wait another 60 years for that house they want so much to come back on the market. But I think 19% is way off the mark.

  2. Good to be suspicious, now more than ever.

    I should add that the same index estimated that San Francisco Home prices dropped over 40% during the 2 previous years (roughly 20% per year). That would be quite a bounce off the bottom. The other indexes I mention had smaller decreases 2007-09, so a smoother path.