Earlier this year, we started looking at the sales prices of San Francisco homes over the last two decades. Examining the data for the first half of 2013, we concluded that housing prices in the city are skyrocketing, but have yet to experience the exuberance of previous years.
Now that 2013 has come to an end, let’s investigate real estate prices in San Francisco over the last year so we can update our "Exuberance Index". We’ve again partnered with Polaris Pacific, a firm that specializes in the sale of new condominiums in California, to compare San Francisco condo prices in 2013 with historic prices.
In 2013, the median price for a condo in San Francisco was $820K. A one bedroom cost $650K, a two bedroom $910K, and a three bedroom $1.25MM. Yikes!
If that seems like a lot, well, duh. San Francisco might be a city with a history of booms (and busts), but $820K is the highest median price for a condo the city has seen in the last 20 years.
So have we reached the peak of a real estate bubble? Is a decline sure to follow imminently? Probably not yet. Once you take inflation into account, home prices in San Francisco have yet to hit their historical peak. The real price of a condo in San Francisco was higher in 2005 than it is today.
How fast are condo prices rising versus the historical average? Let’s look at the median price of a condo each month compared to its price during the same month a year ago. That will give us the “year-over-year” monthly growth rate and help adjust for seasonality.
On a year-over-year basis, real estate prices are growing briskly in San Francisco. Home prices in San Francisco during 2013 where 16.5% higher on average than in the corresponding months of 2012. But that growth rate pales in comparison to the boom times of the original Internet Bubble. In April 2000, prices were 54% higher than in April 1999!
Finally, we come to our Exuberance Index. How many buyers bid more than the asking price that the home is listed for? In San Francisco, 64% of homes sold for above their asking price! This is a fairly high level of exuberance by historical standards, but still not the highest.
In 2000 and 2005, 74% and 73% of condos in San Francisco sold for above asking price. If we look at the monthly data, 90% of condos sold for above asking price in April 2000!
During 2013, housing purchase prices continued to rise. Most homes sold above their asking price, and the median one bedroom costs $650,000, which means that 50% of one-bedrooms sell for at or above that price. But while the current real estate market may seem insane, it’s almost reasonable compared to the the hysteria of April 2000 in San Francisco. That must have been an very interesting time.