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High-End Sales Will Continue to Slide in San Francisco, NYC

Double-digit increases in inventory hurting top markets, especially New York

Sam Khater    |    Housing Trends

The “back-up” of high-end housing inventory means that sales in two of the country’s priciest housing markets—New York and San Francisco—should continue to fall. This is especially true in the Big Apple.

What’s striking about this accelerating trend is that 2015 was a record sales year in both of these high-profile markets.

In 2015, both markets set new peaks for sales of homes priced $2 million: 410 sales in New York and 1,417 in San Francisco. However, the growth rate began to stall and/or decline as the year progressed in both markets.

In New York, sales declined for 4 of the last 5 months of the year and in December 2015 sales were down 5 percent year-over-year. San Francisco sales, the beneficiary of Silicon Valley wealth and offshore Asian investment, were and are still growing, but the rate of growth has slowed.  Last July, for example, sales were up 31 percent on a year-over-year basis but by December the year-over-year delta was only 10 percent.

Inventory (and in particular the change in the inventory) is the most forward-looking indicator for residential real estate. While the slowdown in sales has been only noticeable in the second half of 2015, the deterioration in inventory has been very clear since the fall of 2014 (Figure 1).

In New York City inventory began to rise at a double digit pace in June 2014, while in San Francisco it crossed that threshold in January of 2015. By December 2015, San Francisco’s high-end market inventory was up 25 percent, which is a clear indicator that the market is slowing down and pricing is coming under pressure.

While most observers tend to focus on average or median prices, the ratio of the initial list price to final sales price provides an early preview of the market sentiment on pricing. In New York, during the first half of 2015, the list to price discount was smaller than 2014, but after July that reversed and 2015’s price discount became several percentage points larger (Figure 2).

High End Selling Homes

High End Selling Homes

In July 2015, the list-to-price premium in San Francisco was at its highest point in the last 15 years, a clear indication of a very tight the market. However, even in white-hot San Francisco, the premium began to fade late in the year and by December 2015 was nearly back at 2014 levels. This indicates that while San Francisco’s market is still very tight, the cycle is beginning to turn.

What’s causing this increase in inventory? There is more than one reason but something to look at is the volatility of the stock market. We recently produced research about the strong relationship between equity markets and sales of homes priced $1 million or home and how the 10 percent decline in stock prices since the fall of 2015 was affecting that segment of the residential market. Now it looks like even the uber-rich aren’t immune.

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