2012 San Francisco Year-End Real Estate Review

For the most part 2012 turned out to be a very good year for the San Francisco real estate market. Several factors combined during the second, third, and fourth quarters of 2012 to push up home prices considerably. Below is a quick timeline and breakdown of the major factors that impacted the market .

1st Quarter 2012 – The European Debt Crisis

During the start of 2012, the financial debt crisis in Europe and its potential spill over effect into the US economy was making daily headlines. Uneasiness prevailed and this fear sidelined many buyers and sellers during January and February. Thankfully, at the tail-end of the first quarter the EU got its act together and started to hammer out re-capitalization agreements setting a more positive tone in the financial markets and ultimately our local real estate market. Shortly thereafter buyers and sellers slowly re-entered the market looking to buy or sell during the Spring – traditionally the busiest time of the year for home sales.

2nd Quarter 2012 – Spring Starts with Low Inventory of Homes For Sale

Spring 2012 kicked off in San Francisco with a limited number of homes for sale. Inventory levels were down roughly 30% to 35% compared to 2011. The consensus amongst homeowners was that the market had turned and prices would soon appreciate. As a result many elected to hold off listing their homes for sale. At the same time potential homebuyers fearing higher prices were rushing to buy and take advantage of the historically low mortgage interest rates. As you will see in the chart below with the limited supply of homes for sale and a dip in interest rates prices began to get bid up during the 2nd quarter.

3rd Quarter 2012 – Low Inventory + Cheap Loans = Bidding Wars. Bernanke Unleashes QE3

With the economic sentiment in the U.S. trending in a positive direction, San Francisco’s local economy improving with tech job hirings, and low interest rates available – more buyers flooded the market during the third quarter. However, these potential buyers met tight market conditions. The inventory of homes for sale further declined 40% compared to the prior year. Bidding wars ensued with multiple offers and all cash buyers commonplace. (Case in point, this sale of 392820th Street that received 50+ offers and sold for 65% over its list price). To spur the U.S. economy and keep long-term interest rates low, the Fed and Ben Bernanke unleashed a third round of economic stimulus (QE3) during September. The Fed indicated it would purchase $40 billion in mortgage-backed securities every month until the end of the year.

4TH Quarter 2012 – Ultra Low Interest Rates with Fewer Homes For Sale. The Fed Provides Additional Guidance

During the fourth quarter, the initial effects of QE3 hit the streets. Interest rates for 30-year fixed mortgages pushed below 3.5%, setting an all-time low historical record. Meanwhile, the number of homes listed for sale in San Francisco further declined. With the reduced inventory and cheap debt available prices continued to pushed higher. During November, the median home price in SF reached $840,000, the highest recorded price during 2012. On December 13th the Fed announced that it would enter 2013 with a plan to purchase $85 billion a month of mortgage-backed securities and Treasury securities as part of a continuing attempt to drive down long-term interest rates. The Fed said it didn’t expect to adjust short-term rates until the unemployment rate fell to 6.5% or lower, as long as inflation remains near its 2% target. That would mean, according to the Fed’s economic projections, that it would keep short-term rates near zero into 2015.

So that’s what happened during the last 12 months. For the most part, the theme of the year was reduced inventory levels and cheap debt.

With significantly more buyers than sellers in the marketplace, all-time low mortgage interest rates available, and modest employment growth in the City fueled by Twitter, Zynga, Yelp and other social network companies among others – the competition for homes heated up. Bidding wars ensued with multiple offers and all cash buyers commonplace. These factors created the perfect storm for home prices to rapidly appreciate. Below is the monthly breakdown for single-family homes and condos with an overlay of the average mortgage interest rates for 2012.


In the end it’s good to see things are moving in a positive direction for homeowners. With the availability of low mortgage interest rates, we suspect the market will continue to be robust during 2013. If you have any questions about the market or are interested in buying or selling a home or investing in a commercial property, feel free to give us a call or stop by our office at the corner of Dolores and 22nd Street.


Notes:  All sales data was pulled from the San Francisco MLS. Interest rate data for the San Francisco/Oakland metropolitan area was pulled from HSH.com