Friends, let’s talk IPOs.

The San Francisco market is always wild, but recently there’s been a media frenzy surrounding IPOs. I’m sure by now you’ve all read the infamous New York Times article that came out last month. And FYI, the article was not part of the business or real estate sections—it was in the style section.

It’s not quite as simple as that article would have you believe. In fact, prior to the article, experts were talking about the looming recession with financial markets being in turmoil at the time.

But, with a simple click of a mouse the article has sent the market in a frenzy, though to be fair, lower interest rates are also helping immensely. Case in point, the NYT article came out on March 7, 2019:

  • March 2018 saw 1,775 new listings
  • April 2018 saw 1,866
  • March 2019 saw 1,461
  • As of today, we have 938 available properties.

This is because many sellers are now opting to hold until next year to sell.

What does this say? Simply that the real estate market can change in a blink of an eye purely based on speculation. And right now, there is a whole lot of speculation going on. One thing I’m certain of, scarcity of homes in SF will remain due to 3 things:

  • NIMBYism
  • Bureaucracy of building new homes
  • Cost of construction

Let’s get down to the numbers.

The Complexity of IPOs

In the wake of NYT articleThe Bold Italic and The Atlantic have published their own pieces. Both underline the fact that IPOs are volatile, and that even when successful, a big influx of capital does not bode well for everyone. And, not all neighborhoods are going to see the same influx of new buyers. The Atlantic article contains a number of exciting predictions including this chart of “desired” neighborhoods.

Our Chief Market Analyst, Patrick Carlisle, shared thoughts on the Atlantic article:

Predictions: I am not a big fan of predictions of home-price trends, since the vast majority to end up being well off the mark—and the more confident and dramatic the prediction, the more likely it is to be wrong. Here is an example from a New York Times article: an agent predicts that ‘San Francisco single-family home sale prices could climb to an average of $5 million’ in 5 years. People got very stirred up, the article went viral, and a media frenzy ensued.

But…for context: The 2018 SF average house sales price was $1,965,000, and in 2011, just before the latest recovery upcycle, it was $948,000, equaling a 107% 7-year increase in average sales price. According to the S&P Case-Shiller Home Price Index for high-price Bay Area homes (its best index for SF real estate), there have been 4 upcycles since 1980. Per their calculations, the highest appreciation rate during one ran about 100%, and the latest upcycle, so far, ran about 90% through mid-2018. (Case-Shiller does not use average sales prices to calculate appreciation.) If the analyst-agent’s prediction is correct, we are in the midst of an upcycle that could see an appreciation rate of 427%.”

The main takeaway in all of this (besides to educate yourself!) is not to give in to hype, because in fact the numbers suggest that waiting might actually not be the best idea—there are a ton of factors at play that could lead to any number of market outcomes. I love talking about this, so please don’t hesitate to reach out if you want to dig deeper.

 

April Market News:
A More In-Depth Exploration

A substantial portion of Q1 statistics reflect new listings and accepted offers occurring during the mid-winter market doldrums (Thanksgiving to mid-January). In November and December 2018, the stock market plunged drastically from its all-time high in September, and interest rates hit their highest point in years: these factors negatively affected buyer demand. Then both turned in dramatically positive directions in early 2019. So, Q1 statistics reflect economic conditions in both Q4 2018 (very negative) and Q1 2019 (very positive). It is also the quarter with the lowest sales volume.

The spring selling season – whose data starts to show up in March, but is mostly reflected in Q2 – is the most active of the year, and also typically sees the highest rates of appreciation. As always, there are many economic factors at play impacting Bay Area markets, some of which are discussed below.

Read the full report »