Average Home Sales Prices in Bernal Heights Now Exceed Pre-Bust Highs

Bernal_Non-Dist_SFD_Avg-SP_DolSqFt_by_YEAR

These charts were compiled by the Paragon Real Estate Group. If the data is correct (and I’m reading it correctly), it would appear that the real estate bust has all but ended in Bernal Heights, with average home sale prices now exceeding their pre-bust highs.

Paragon did a little hocus-pocus with their calculations by stripping distressed property sales (i.e. foreclosures) from the mix. Yet that seems like a reasonable methodology, given that the accompanying table indicates the number of distress sales has also dropped in the last year:

Bernal_Non-Dist_SFD_Avgs_Numbers

Notice also that while average sales prices are at a new high of $907K, prices per square foot have not yet topped their 2007 peak of $666. For better or for worse.

21 thoughts on “Average Home Sales Prices in Bernal Heights Now Exceed Pre-Bust Highs

  1. What happened to Jan-Aug 2012? Hard to take charts seriously when two-thirds of the data from the most recent year is MIA.

    • Totally. Amongst that set of numbers the 907 number is one to very intrigued by, given how much of an increase it is over 2011. Then, as you note, it selects from only part of the year… I am ready to completely discount the 907 until it is explained why Sept-Dec is supposed to be interpreted against prior full-year results.

      • Or, rather, whatever confidence interval we should place around the mean when the sample-size is 39 units (where all previous years show more than 100 units). Give me a T-Test!

  2. The only unanswered question is: When does the crash come? The run-up is way too fast. Because a home purchase is the largest purchase most people make, home prices usually drive inflation over the long haul. And if you track historic prices over decades it’s easy to see this. When home prices far outstrip inflation, it means there’s a housing bubble and there will soon be a crash.

  3. thank you, RENT CONTROL.
    SFTU and dipshit SF Supervisors are as much to blame for this…
    I realize this may seem counter intuitive – but rent control causes rents/home prices to rise, as much, if not more, than any other factor. It’s fantastic if you’re a long term renter from the 70’s, but you’re benefitting at the cost of anyone else who rents after you signed your lease. Fewer supply, greater demand, higher prices. Simple econ.

    • Thats all nice and everything that you are trying to bring up the rent control debate, but this is about house SALES not rents. Renters have their own bubble to burst but it does not make so much of an issue when you are talking about selling homes. But nice try.

  4. Rent control applies ONLY in certain circumstances. The following are NOT included under rent control:

    (1) You live in a building constructed after June of 1979. This “new construction exemption” is the biggest exemption in SF and can not be changed Click here for link to Assessor’s database: http://ec2-50-17-237-182.compute-1.amazonaws.com/PIM/, where you can usually find out the date your building was constructed.

    (2) You live in subsidized housing, such as HUD housing projects.

    (3) Single Family Homes/Condos—You do not have full rent control protection if you live in a single family home (note that a single family home with an illegal in-law unit counts as a 2 unit building) or a condominium and you (and your roommates) moved in on or after January 1, 1996. While these units do not have limits on rent increases, they do have “just cause” eviction protection, meaning you can only be evicted for one of 14 just causes.

    (4) Landlords can also petition for other increases (notably capital improvements for a maximum increase of 10% or increased operating & maintenance costs for a maximum increase of 7%; these rent increases must be documented and justified and approved by the Rent Board before they can be imposed). Capital improvements are things like new windows, a new roof, painting of the exterior of the building, landscaping, new appliances (ranging from refrigerators to a new heating system) and other similar improvements to the property which generally are additions or replacements as opposed to repairs.

    So, as you can see, huge numbers of apartments were built in the past 34 years in SF and none of them come under rent control. Yet, rent on those apartments is going up FASTER than rent on older apartments.

    So, your argument is totally without merit.

    • Well, it would be completely without merit if _none_ of the rental supply were under rent control in 2012, but it is partially with merit since _some_ still is constrained. The question is: how much merit should we ascribe to the argument (that rent control is a factor in higher housing prices). The answer to that would be based upon two factors: 1) how much of the total housing stock is rental housing, and 2) how much of the rental stock is subject to rent control.

      Let’s look at three scenarios:
      A) Rental stock is 10% of total housing stock — Argument probably has little merit no matter how much of rental stock is under rental control
      B) Rental stock is 60% of total housing stock, and 80% of it is under rent control — Argument probably has lots of merit!
      C) Rental stock is 50% of total housing stock, and 20% of it is under rent control — Argument has a little merit, and, depending upon how much total influence the price of 10% of the total supply has on the rest, then it may have more or less merit.

      So, not completely without merit. Not a perfect correlation, but it is probably a factor.

      • Okay, I’m game. Educate me. Explain exactly how rent control increases the price that someone pays to purchase a house. What is the interaction of those two things? For example, let’s pretend that it’s a given rent control doesn’t work and it keeps some rents artificially low while forcing some rents to be artifically high. Why would that increase the cost of buying a house? It seems to me the amount people are willing to pay–even more so than able to pay–is the driving force here.

  5. It is about two economics concepts:
    1- Supply and Demand
    2- Substitutes

    Owning and Renting are near substitutes for each othe, in economic terms, in that many who do one would consider doing the other, particularly if the price of one is different than the other.

    Since they are substitutes, the price of one influences the demand for the other. For example, if San Francisco was suddenly flooded with luxurious, spacious and cheap apartments, demand for houses would decline (as some would be buyers of houses would rent instead). With the decline in demand, by the laws of supply and demand, comes a decline in price.

    With rent control, the impact is on supply. Since rents on rent controlled units do not rise as fast as the market, those who live in the rent controlled units are less likely to turn over, since any substitute (buying, or renting another place), would carry a much higher price. Effectively, that takes those units out of the supply.

    Market forces guide the price of the rest of the supply, so that more-scarce supply naturally is more expensive than it would be if there were no rent controlled units.

    How much an influence on the prices is hard to establish, but is certainly related to how much of the housing stock is rented, and under rent control.

  6. Okay, I see some connection there, but now I have some more questions. (Plato’s theory of learning at it’s finest.) Let’s now accept as a given that rent control entices some people to stay put (which is probably quite true) and that effectively takes them and those apartments out of both the demand and supply side of the equation.

    That leaves a certain number of people who will either choose to rent from the leftover supply or buy from the other supply that is for sale. (Or move out of the market completely, but I won’t go there.) You’re saying that the leftover rentals in our city are more highly priced because landlord’s aren’t making enough money on the rent controlled ones, so they have to gouge (I mean make it up on) everyone else. That price gouging leads people who might otherwise choose to rent–if very nice reasonably affordable apartments were available–will, instead, turn to buying. And I presume you feel that they are doing so at top of the market prices because the supply is so scarce.

    I still have some skepticism about this for several reasons.

    1) If it’s true that rent control is taking units off the supply side, it is also taking people off the demand side. If those units were vacated and landlords could all raise the rent to “market level” it would also mean that those renters are competing for housing which would allow landlords to increase prices even more.

    2) Generally in my 50 years on this planet, I have not met many altruistic landlords. (There are some and one is mine, as I rent on the Precita side of the hill at a very affordable price. Thanks Mike!) So, I have doubt that they would, in any large scale way, say, “Okay, so now that we can charge reasonable market rates for all our rental stock and make a nice living doing so, we can stop gouging the prices over here.”

    3) It seems to me when talking about home sale prices, there is not just supply and demand (both numbers of buyers and desirability of an area) at play. Another strong factor is how much money a segment of the population has and how much they are willing to pay to buy a house. This is where the bubble comes in. Frankly, sellers can only charge as much as people are willing to pay on a home. That kind of “high roller”, I have it now so I’ll spend it mentality is boosting prices as much as anything else. Think about it like this. Now and then when you hear about some Hollywood actress who spends an obscene amount of money on a dress, and you think “I would never pay that, even if I had it.” Well, the prices folks are willing to pay for a house, because they have the money today, is setting the definition of “market rate” artificially high. What will happen when the tech eonomy busts again?

    I guess my final layperson’s observation is to point out that even small landlords are charging terribly high prices. So, the person who buys that very expensive home in Bernal and then rents the garage level studio (no pets allowed… in the most pet friendly neighborhood I know) is also charging $2,500 or more. They aren’t a multi-unit landlord trying to make up for the loss they take on rent controlled units. Best case scenario, they are just some sucker who paid so much for his house that he needs to stay afloat charging exorbinant rent. Worst case scenario he is heartless and wants to make a fast buck without any regard to the impact he has on the one diverse and eclectic community he lives.

    I suppose my theory is that supply is a factor, demand is a factor, recklessness is a factor and greed may be the biggest factor of them all.

    • Rent control isn’t the only tenant protection which affects the price of homes for sale. The difficulty associated with evicting tenants in SF leads to a premium for unoccupied properties on the sale market. (Or viewed the other way, a penalty on occupied properties.)

      High rental/sale prices aren’t synonymous with gouging. People generally charge what the market will bear. That doesn’t make them any greedier than someone who maximises her salary. Also, restrictions on pets, etc., reflect the undesirability of those variables from the landlord side of the equation. If there is more demand than supply for rental properties, then it makes sense that landlords will seek tenants who are least likely to lead to hassle/expense. Some may be animal lovers and be willing to deal with that, but they will be the exception. In the end, it’s a financial transaction, and each party seeks to maximise benefit and minimise cost.

      We can demonize the newly monied folks, but everyone living on the hill has outbid someone else to be here. Are we all yesterday’s suckers trying to stay afloat?

      (And, for the record, I do not own any rental properties and don’t anticipate owning any in the future.)

  7. SUPPLY AND DEMAND: Sounds good but it doesn’t work in housing because housing is the opposite of most commodities. Why? Because people want to live with other people around them, and they’re willing to pay a premium for it. This is why the most expensive places on earth are also the most densely-populated, such as Singapore, Tokyo, NYC, London, etc.

    We saw this happen in the 1990s when Joe O’Donoghue’s Residential Builders Association took a city loophole and began building junk condos (aka live/work lofts) on every spare lot South of Market. These condos sprang up next to machine shops, car repair shops, warehouses, etc. So, with the 20,000 or so extra apartments did the prices drop? No, exactly the opposite happened. The prices went through the roof because the city managed to turn a mixed-use industrial neighborhood into yet another residential neighborhood and people FLOCKED to get in. This drove up prices to much that now most small service businesses can no longer afford to be in the South of Market area. Some have shut down and some have moved to Oakland, SSF, Daly City, etc.

    The solution to high prices is to NOT build any more houses! I know it’s counter-intuitive, but it’s very true. You want to buy a 4-bedroom home for $85,000? Consider the town of Alturas, with great fishing, hunting, real seasons, river rafting, all the amenities of life. There are good cheap places to live in California, but it’s not in the crowded areas.

    • Living in SF will never be cheap, but increased supply does lead to lower prices, and reduced supply increases prices. As you note, the reduced supply of light-industrial space led to higher commercial rents. The increase in residential rent/sale prices was coincidental but tied to increased demand, not increased supply.

      There is plenty of scope to increase density in residential neighborhoods without cannibalizing commercial areas. Two-story, single-family homes aren’t exactly a model of density.

    • I don’t have the link handy for a proper citation, but I tweeted this a few weeks ago…

      San Francisco added 7000 new residents last year, but only added 200 units of new housing. Hard to see how that pattern can do anything but drive up prices in favor of the highest bidder.

      • This may be it: http://www.spur.org/publications/library/article/san-francisco-boom-back

        “Average rent for apartments of any size across the city has increased 7.6 percent in 12 months.[9] In some neighborhoods, rents have doubled over that same period.[10] On the supply side, over the past 20 years San Francisco has built about 1,500 units per year on average. But the city would have needed 3,000 to 5,000 units a year to allow supply to keep up with demand — a number that similarsized cities manage to provide. In 2011 housing production reached a historic low — with only 269 new units.[11]”

  8. Supply/Demand systems are best at describing why things are changing. The data point on 7,000 new residents with only 200 new units suggests why prices in the system have been increasing (leaving any inflation effects aside). 

    Now, why does rent control increase the effect of the new 7,000 on prices? By keeping the base of housing smaller than it would be, the supply available is smaller. Sure, we haven’t accounted for the renters yet, but without rent control, some renters leaving their rental units will exit the market. Also, adding supply (rental units) and demand (renters out of their prior apartments) in equal measure tends to drive prices down. A market of 100 has less liquidity and less efficient market pricing than a market of 100,000.

    Three points:
    1-  it all is a matter of degree. Not much under rent control will have not much effect.
    2- I wish not at all to engage in the question of right and wrong of this, just the economics. 
    3- Below-market property taxes (eg prop 13) have a similar effect. Fewer homes turn over because of it. Also see point 2.

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