Tuesday, October 11, 2011

Real Estate: a Local Market

Since most of us have become numb to the high volatility that has situated itself in most markets these days, I want to spend time studying the data that is most pertinent to the readers of this blog: San Francisco Real Estate. The following points stem from the S&P/Case-Shiller Indices:

  • The 20-City Composite Index measured from the June/July 2006 peaks through July 2011, showed a peak-to-trough decline of -33%.
  • San Francisco specific experienced a peak-to-trough decline of -46% - much of which can be attributed to the lower price ranges (lower for the City) and in the less affluent neighborhoods (i.e. Bayview / Hunters Point).
  • San Francisco’s recovery from recent lows is up nearly 15% vs. the 20-City Composite Index of only 4%.
  • San Francisco is #1 on the 20-City Composite Index for recovery from recent lows, followed by Washington DC at 13%.

The takeaway: real estate is a local market and it is too difficult to draw conclusions on a national level.  Real estate is fragmented, which means that real-estate specialists have to properly evaluate the local economy. Here are my opinions as to why I have strategically positioned myself in San Francisco: SF is a world-class City, with limited land to further develop and build, a climate that’s arguably ‘perfect’ and with an economy driven by innovation and progressive minds, as Silicon Valley is steps away. Such dynamics present a real estate market where demand has shown resiliency and supply is limited – a formula that most businesses salivate over.

This evidence, albeit a matter of perspective, is valid and is why real estate in San Francisco is not commensurate to the macro variables we continually hear about via the media and other outlets. What I will be paying attention to are the underlying qualities continuing to be present in San Francisco. This is how I will determine how the demand-side of the equation will change… and where prices have to reflect that change.

In sum: I maintain an optimistic outlook on the SF marketplace. Stay tuned for a more in-depth look at how various sub-districts within San Francisco have fared since the market’s peak…