Friday, August 24, 2012
San Francisco property values, as seen through the prism of annual tax assessments, are showing strong signs of rebounding, according to Assessor Phil Ting.
Meanwhile, a separate report showed the number of underwater homes in the nine Bay Area counties slowly subsiding as values rise.
“It is starting to come back, there is no question,” Ting said. “San Francisco remains probably the strongest real estate market in the state.”
Throughout the housing downturn, San Francisco was a Teflon-coated county compared with the rest of California, with more moderate declines in real estate values than elsewhere. It was the only county in California that never saw its overall tax roll shrink during the downturn. For the 2012-13 tax year, the assessed values in San Francisco grew 4.17 percent, or $6 billion.
Commercial properties led the growth surge, particularly in emerging areas for biotech and technology firms: Mission Bay, the South of Market portion of the Financial District, and the Inner Mission.
“Even during this very challenging recession, we’re seeing (strength in) those markets driven by industries like life science, biotech and health care as well as tech companies,” Ting said.
Under Proposition 13, properties are reassessed by more than the annual 2 percent limit when they change hands, undergo significant renovation or are newly built. All three factors were at play in the surge in values in areas such as SoMa and Mission Bay.
On the residential side, the recovery is more checkered, with weak areas particularly in the southeast and western parts of town.
Proposition 8, passed in 1978, lets assessments temporarily drop to match lower property values. Around the city, 15,811 properties got such reductions this year, averaging $175,980 in reduced value per home.
Ironically, Mission Bay, South Beach and South of Market – home to lots of new condos – were among the residential areas with the most Prop. 8 reductions, despite their boom on the commercial side.
“That whole cluster was heavily impacted and had the biggest overall declines in roll value,” Ting said. “They had a significant amount of new building, which created a bit of temporary oversupply.”
Lower-income areas, such as Bayview and Excelsior, continue to struggle.
“Those generally have been the softest real estate markets over the past couple of years,” Ting said. “They are entry points for the first-time home buyers. They were the first to show softness and the last to show strength.”
Meanwhile, perennially popular – and pricey – neighborhoods such as Pacific Heights, Noe Valley and Russian Hill saw assessed values rising.
“Areas that traditionally have been in high demand remain fairly strong,” Ting said.
Overall, Ting said, “I feel our recessionary recovery is U-shaped. We’ve definitely stabilized. It doesn’t feel like it’s jumping back in a sharp V shape the way it did in 2004 or 2005.”
Assessments look at property values as of Jan. 1, so this year’s exceptionally frothy real estate market is not yet factored in. But a report from real estate service Zillow showed that rising home values decreased the percentage of underwater properties between the first quarter and second quarter.
“It’s good news that negative equity is dropping, but we expect the overall recovery to be fairly slow,” said Stan Humphries, Zillow chief economist. “We are now mostly at bottom in most markets.”
Alameda and Contra Costa counties – two of the hardest-hit areas locally – saw significant changes in negative equity, which went from 33.8 percent of mortgaged homes in Alameda to 30.9, and from 42.8 percent in Contra Costa to 40.1.
“Besides a very healthy appreciation in home values, the high pace of foreclosure activity is also pushing negative equity down” in those counties, Humphries said.
That’s because once underwater homes are repossessed by banks and resold at lower prices, the new owners start out with equity through their down payments.
San Francisco stands out for having a relatively small pool of underwater homes.
“The big driver is that home values there are down just over 12 percent from their peak,” Humphries said. “That’s a very modest decline, which leads to a very low rate of negative equity.”
By comparison, Alameda values are down 37 percent from peak, Contra Costa almost 51 percent and Solano County almost 60 percent, he said.
Negative equity slowly subsides
The percentage of underwater homes, with mortgages larger than the value, decreased in every Bay Area county between the first and second quarters of this year.
|County||Second quarter||First quarter|
Where home prices are rising
These neighborhoods saw the biggest increase in total assessments, which look at the values of all properties as of Jan. 1.
|Financial District South||373,349,727||4.08|
|South of Market||261,243,035||3.98|
Source: San Francisco Assessor’s Office