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San Francisco Case-Shiller Index Deciphered

The S&P Case-Shiller Home Price Index for the San Francisco Metropolitan Area and How It Applies to the City of San Francisco Itself

The Case-Shiller Index is released 2 months after the month being assessed on the last Tuesday of the month. The San Francisco Metro Area Index assesses home price changes in 5 counties in the northern Bay Area.

We now have a more updated report page on the Case-Shiller Index, and it can be found here: Link to Updated Case-Shiller Report for SF Bay Area

The first two charts illustrate the price recovery of the Bay Area high-price-tier home market over the past year and since 2012 began, when the market recovery really started in earnest. In both 2012 and 2013, home prices surged in the spring and then plateaued in the summer-autumn. The surge in prices that occurred in spring of 2013 was particularly dramatic, reflecting a frenzied market of huge buyer demand, historically low interest rates, increasing consumer confidence and extremely low inventory. In San Francisco itself, it was further exacerbated by the high-tech-fueled explosion of new wealth. The market then calmed down somewhat in the second half of 2013, but has since started to heat up again in early 2014.

Case-Shiller Index numbers all reflect home prices as compared to the home price of January 2000, which has been designated with a value of 100. Thus, a reading of 185 signifies home prices 85% above those of January 2000.

The third and fourths charts below reflect what has occurred in the longer term, showing the cycle of recession, recovery, bubble, decline/recession since 1996, and since 1988. Note that, past cycle changes will always look smaller than more recent cycles because the prices are so much higher now; if the chart reflected only percentage changes between points, the difference in the scale of cycles would not look so dramatic.

Before trying to apply Case-Shiller Index trends to specific cities, neighborhoods and homes -- which can be deeply misleading -- please read the explanation of how the Index works.

This chart below shows median sales prices just for the city and county of San Francisco (not the 5-county MSA). Note that median sales prices don't correlate exactly to "values" as they are often affected by a variety of market factors, such as seasonality. Also this chart is for both house and condo sales while the Case-Shiller Indices referred to in this article relate to house sales only.

Case-Shiller Index Deciphered for the SF (City & County) Real Estate Market
The S&P Case-Shiller High Tier Home Price Index is based upon their analysis of higher priced home sales (lately starting in the range of $800,000) in the 5-county Metropolitan Statistical Area (MSA) comprised of San Francisco, Marin, Contra Costa, Alameda and San Mateo counties. There are several different Case-Shiller indices for the MSA, but it is the High Tier Price Index which is most applicable for housing values in the city of San Francisco itself.

Here are some important points to remember about Case-Shiller:

  • Reviewing the Index is like looking in the rear-view mirror – the Index comes out two months after the month being analyzed, and that Index reflects a 3-month moving average. Any month's closed sales generally reflect market activity in the two months previous to it: for example, we get the January report in late March: December's Index reflects the 3-month average for November, December and January, which reflects accepted offer activity in September through December. So in late March, the January Index reading is giving us a snapshot of the market 3-5 months ago. Market conditions can significantly change within such a time period.  
  • The main C-S Home Price Indices track price trends for houses only -- condos, co-ops, TICs and multi-unit buildings are NOT included. San Francisco contains only about 7% of the house sales in the Metro Statistical Area (MSA) -- see the pie chart further down in the report -- so the aggregate Index is heavily skewed toward the other counties’ markets. Market conditions can vary widely between counties and indeed between neighborhoods within counties. San Francisco measures about 49 square miles; the 5-county area is over 2000 square miles. To drill down more locally, within the city, Pacific Heights is about 5 blocks away from the Western Addition neighborhood; the average dollar per square foot in the first is over $1000 and in the second, about $500 -- a huge difference within a 6 block radius, but quite common in the city.

    Putting Pacific Heights or Russian Hill or Cole Valley in the same statistical-analysis basket as Pinole, Martinez and San Bruno is even more problematical.

  • Furthermore, Case-Shiller tracks not only overall aggregate house prices, but price trends broken into 3 price tiers: low, middle and high -- dividing the total number of sales into thirds. And the conditions and trends in these different price segments have been very different over the past few years.  
  • Case-Shiller’s high-tier price index is the one that applies to the city best, but it doesn’t apply perfectly. For the 5-county San Francisco Metro Area, the top third of sales in September 2013 started at a sales price of $814,000. But if we divide the city’s house sales of the past 12 months into thirds, that would be near the top of the city's lowest third; the city’s upper third of house sales doesn’t begin until well over $1,000,000. 

  • Nationally, as well as in the state, Bay Area and the city of San Francisco, the lower the price segment, the more its values were pumped up by the subprime loan fiasco and the harder it was hit by distressed sales (bank-owned property and short sales). The greater the percentage of distressed sales in a given neighborhood, the larger the decline in value from peak prices. Thus, though all areas have seen significant declines from peak values, the least affluent areas have been hit hardest with value declines and the more affluent neighborhoods have been least affected. San Francisco has many of the most affluent neighborhoods in the country. Distressed home listings in San Francisco have rapidly declined as the market recovers and their impact on city values has all but disappeared.

This next chart compares the 3 different price tiers -- appreciation/ depreciation/ recession/ appreciation -- from January 2000 through December 2013. (The Index readings for all three tiers have increased further in the months since this chart was last updated, as can be seen in the charts at the top of this article.) The low-price-tier’s bubble was much more inflated by the subprime lending fiasco – an absurd 170% appreciation over 6 years – which led to a much greater crash (foreclosure crisis) than the other two price tiers. All 3 tiers have been undergoing dramatic recoveries, but because the bubbles of the low and middle tiers were greater, their recoveries leave them well below their artificially inflated peak values of 2006. It may be a long time before the low-price-tier of houses regains its previous peak values. The high-price-tier, with a much smaller bubble, and little affected by distressed property sales, is now pretty much back to its previous peak of 2007. Many specific neighborhoods in the city of San Francisco have now surpassed previous peak values.

It’s interesting to note that despite the different scales of their bubbles, crashes and recoveries, all three price tiers now have similar overall appreciation rates when compared to year 2000. As of February 2014, the rates of appreciation range from 77% for the low-tier, to 83% to 85% appreciation for the mid and high tiers, over the past 14 years. The gap is relatively small and has been converging in recent months.

Different counties, cities and neighborhoods in the Bay Area are dominated by different price tiers.

Remember that if a price drops by 50%, then it must go up by 100% to make up the loss: loss percentages and gain percentages are not created equal.

The two "2013" readings for each price tier below refer to January 2013 and December 2013.

The pie chart below illustrates how in the Case-Shiller Index for the 5-county "SF Metro Area," the counties of Alameda and Contra Costa dominate the analysis due to their much greater number of house sales (as compared to, say, San Francisco). This greatly affects the Index numbers commonly quoted in the news reports.

There is only one way to assess value and value changes for a particular property and that is to perform a detailed comparative market analysis specific to its location, construction quality and condition, curb appeal and amenities. Sadly, the S&P Case-Shiller Index is of little help in performing that analysis.

For a more complete overview of market statistical trends in San Francisco, there are links to additional analyses above. Further information on the data points and methodology of the S&P Case-is publicly available on the S&P website.

All data is from sources deemed reliable, but may contain errors and is subject to revision.