Market Cools While Nine out of Ten Homes Sell Above List

I remember reading years ago about selection bias picking news stories to read. Think about it: when was the last time you scrolled through headlines and clicked on one advancing a viewpoint with which you disagreed? Sometimes sure, but more often than not we choose to consume information that supports our own views, even though most of us know that the perspective of the opposing side challenges and strengthens our own convictions.

It’s the same thing with market data, and I’m as guilty as anyone. I have my own views on the market, and subconsciously I seek out data and anecdotes to support my beliefs. Humans by nature have a hard time admitting they’re wrong, so these are natural tendencies, and part of what helps explain how seemingly intelligent people get caught up in frenzies and fads.

Case in point. Last month, we highlighted a single family home listing in Bernal Heights which had seen a price reduction after just three weeks. I pounded my chest, citing this as evidence for my view that the San Francisco housing market is in the early stages of correction.

Then earlier this week, an alert notified me that the property had sold – well above asking and even higher than the original list price. So much for my correction. I wanted to know more, to try and inform my gut by determining whether the correction has in fact begun and if so, how far along we really are.

San Francisco’s MLS doesn’t offer an export feature (another story for another post), so I had a crunch some numbers the old fashioned way. The results are below, and while they don’t show a market in full-fledged correction mode, they do show one that is unmistakably taking a breather.

The two primary metrics I look at to evaluate residential housing cycles are how many homes are selling above their asking prices and how far above those asking price they’re selling. They’re two sides of the same coin, but looking at them together help tell a more complete story. These two metrics are really a measure of sentiment and reflect the interplay between supply and demand. I then graph those trends against price (sale price or price per square foot) to get a sense of how prices are moving given those trends in sentiment.

Looking at Bernal Heights as a proxy for markets popular with the younger demographic driving today’s San Francisco real estate market, it’s easy to see the remarkable current boom that we all know about. It’s also clear that the while still hot, the market isn’t getting hotter. And while nine out of every ten homes is still selling above its original asking price, the amount that they’re selling above is off slightly from the heady years of 2014 and 2015.

The only thing more dangerous than calling tops is calling bottoms, so the data should be taken for what it is – numbers on a page. Data like this always need to be backed up and cross-checked against market color from the trenches. And nearly every broker and player I talk to confirm the trend played out by these figures: the game is changing.

Or perhaps more accurately, has already changed.