Mainstream National Media Reporting on Steep San Francisco Rent Drop

The Wall Street Journal and other mainstream financial news outlets are now caught up in reporting that a fairly serious crash is going on in the rental markets in New York City, San Francisco and San Jose. New York is being impacted to the tune of a 20% downturn in rentals even as rents go down or incentives to rent (like free rent for a up to six weeks) go up.

Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at UC Berkeley says, “San Francisco and New York are leading the way in the downturn. People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”

What’s happening is that there are so many rental units coming on the market in a kind of perfect storm of supply glut. The rental market in these big cities has been in a long boom. Seven million new renter units have been built nationwide since the foreclosure crisis in 2006-7 plus a trend toward urban living. The home ownership rate declined to a 51-year bottom.

In San Francisco there’s been a one-two punch of a reduced job availability in the middle and upper class ranges and a huge jump in multi-unit housing coming on the market. By the end of 2018 there will be 6,500 more apartments to fill with tenants. New York is projected to have 42,000 new units on tap in that same period. San Francisco, Oakland and San Jose are seeing a 76% surge in new apartment units in 2016. One of the results is generous incentives offered by luxury and semi luxury towers to get people to move in—from giving away free bikes to four weeks of free rent or $1,000 discounts for renters saddled up with tech companies like Apple. And some rent prices are coming down in the luxury level class.

Overvalued and Undervalued Housing Markets in the US

In the housing market across the US the five cities identified in the 2016 Forbes valuation report as being overvalued—no surprise—includes San Francisco. However, SF is last of the five which (in order) are: Austin, San Antonio, Phoenix, Las Vegas and San Francisco. The five most undervalued markets are: New Haven, Detroit, Hartford, Providence, RI, and Cleveland, OH.

Analysts at Fitch Ratings U.S. RMBS group (which produced the report) said that inventory is the major factor for the overvaluation in San Francisco, but that as well (for SF and the other four cities) increased income is stimulating price increases.

The criteria Fitch followed for determining overvaluation and undervaluation is: overvalued when home prices outpace the local economy; undervalued when home prices are below what the local economy can sustain.

San Francisco is experiencing a sputtering economy right now, which has put the brakes on price increases in the housing market in the luxury condo and housing sectors. Paragon Real Estate Group states this “cooling of a desperately overheated market is something closer to normal.”

What’s Hot District by District in SF Real Estate

Despite the fact that SF house and condo sales are slow this summer (with condo inventory very high and condo sales really down), there are areas catching fire in new sales.

Check out the chart below which depicts each SF district by percentage of MLS listing going into contract in the second quarter of 2016. Looks like the Sunset district (D2 on the chart) is really burning up the sales now with 124 houses sold.

district-sales
The frostiest area is the city’s largest condo market by sales: District 9 (includes Bernal Heights, the Central Waterfront / Dogpatch, Inner Mission, Mission Bay, Potrero Hill, South Beach, and South of Market (SoMa)). Yet despite having the most condo sales the district overall is the coolest by % of listing accepting offers. And new condo projects are being built up there. On the hotter side for D9, the house sales there were the second highest in the city.

Sales of TIC units have dropped 50% year over year and they are the weakest property segment in this chart.

More Slowdowns in Condo Sales in SF

We recently wrote on the summer seasonality slows in the San Francisco home market. And now the Mark Company Trend Sheet for June 2016 that just came out is affirming that new project condo sales are slowing—perhaps dramatically. While the Mark Trend Sheet could be somewhat incomplete (projects could be coming out of escrow rather than units going into contract which is how the sheet records sales) its showing that the 32 new construction condos that sold in June are down 66% year over year. There are now 1195 new project condos on the SF market, up 47% year over year. Based on that rate it looks like there are 37 months of new condo inventory on the market.

Comparing the February MCTS with the MCTS June sheet (see image below) its apparent that some slowdown is afoot. I have to emphasize “apparent” as all the info may not be here. For instance the Mark Company’s ultra luxury project 181 Fremont’s marketing commencement date was 2 months ago in May. But there’s no status on sales for 181 Fremont.

MCTScompareThe Mark Company Trend Sheet is also available as a PDF here.

June ’15 to June ‘16 Home, Condo and TIC Sales in San Francisco

What’s happened in home, condo and TIC sales over the past year in San Francisco, ending on June 30, 2016? Well…lots, as you will see below in the sales charts built on information from SF’s Multiple Listing Service.

We’ll start off with a colorful image that depicts all the neighborhoods of San Francisco.

This is followed by a first chart that illustrates the overall SF sales. Note how home sales in the $750,000 to $999,000 range comprise the most sales: 628 total. The least amount of sales is condos at $10 million and over. In 2013 the home sales for $500,000 to $749,000 were the biggest segment.

Then the SF home sales activity for the past year is presented by charts illustrating individual city districts and neighborhoods. The analyses are broken out by number of transactions in designated sales-price segments.

Note that median sales prices will change every time the time period or neighborhoods included in an analysis change.


Highs and Lows in SF Home Sales

The SF real estate news site sf.curbed.com featured its highest priced and lowest priced homes selling in SF for the week ending July 1st.

A very expensive home moved, and a shockingly affordable one also sold.

Up in Pacific Heights a renovated 4,800 foot five bed / five bath house finally sold at $10 million, after two price reductions that ratcheted down from $12 million. The house was built in 1971 and was long considered an ugly ducking in the neighborhood. Architect Ravi Anand was brought in to rescue the house with a modern look that earned critics’ praise. But despite the design upgrade the house wasn’t selling recently until the price drops totaling $2 million.

Over just north of the Panhandle area on Fell Street a SF miracle occurred—let’s call it A Miracle on Fell Street. A one bed / one bath condo sold for $157,000. Yes. Amazing. Unbelievable. Are we in the wrong city? Well, it was a BMR sale in which the Mayor’s Office of Housing facilitates affordable home sales to first time buyers within certain lower thresholds of personal income. The condo is built on the first floor (above garages) in a 1925 building and has a pretty nice grass and wooded area view. It’s one block west of Golden Gate Park.

Summer Seasonality in the San Francisco Homes Market

Are we in a summer slow down for home sales here in San Francisco? The charts below reflect a slowing in June, so I’m thinking we’re in the summer season doldrums. Yet, there are new listings coming up and new sales taking place. There’s some activity even in slower months. With this in mind, and with an eye on specific properties and their marketability, this seasonal weakening period could be a smart time to buy or sell.

What contributes to seasonal slumps? Inventory levels, buyer demand, and median home prices are the major players—as the charts illustrate. Additionally, there are factors of general economic conditions, financial market movements, interest rate changes, local stock market IPOs, new construction coming on the market, and the unpredictable natural or political events. That’s quite a murky crystal ball. We’ll probably have to wait until July/August is over, and get into the autumn season to get a real sense of how the SF market is doing.

12

45678910111213

New Case-Shiller: Bay Area Home Prices Tick Up a Little

After the feverish spring 2014 market, home prices in the high-price tier – which applies best to San Francisco and Marin counties – flattened and then ticked down a little, while more affordable home segments continued to tick up: It’s not unusual for the market to cool off and plateau during the summer months. The October 2014 Case-Shiller Index just released (on December 30), begins to reflect the autumn selling season, which starts after Labor Day: The market typically begins to heat up again in autumn. (Note that transactions negotiated in September generally start closing in October.)

According to the newest Index, all Bay Area home price segments ticked up in October by about 1%, plus or minus depending on segment. Note that small monthly fluctuations are not particularly meaningful until substantiated over a longer term.

This chart tracks the high-tier-price market since the recovery began in 2012 using Case-Shiller data. The C-S numbers refer to a January 2000 value of “100”, thus 198 signifies a value 98% higher than that of January 2000.

image002

This chart below looks at the last 3 market cycles:

image006

And this chart show median San Francisco house and condo sales prices by quarter (reflecting sales reported by 12/26/14, so it contains newer data than Case-Shiller):

image009

San Francisco New Construction/Development Report

Highlights from the Q3 2014 Pipeline Report by the SF Planning Department

December 2014, compiled by Paragon Real Estate Group

On December 19th, the San Francisco Planning Department issued its excellent Q3 2014 Pipeline Report, which tracks new residential and commercial development in the city. There is a wealth of data within its 36 pages: Below is simply an excerpt of some highlights.

The Pipeline includes projects in every stage of the approvals, permits and construction process, and being listed in the pipeline doesn’t indicate when or even if the project will be completed. Changes and additions to the pipeline occur on an ongoing basis: Indeed, it seems rarely a day goes by nowadays without a big new project being announced. Last but not least, changes in economic and political circumstances can suddenly and dramatically impact new development plans and construction.

  • 50,600 residential units are in the current pipeline, including condos, houses and apartments, as well as affordable and social-project housing. Houses constitute far less than 1% of the total units. (There are currently approximately 381,000 housing units in San Francisco, per 2013 U.S. Census data.)
  • 18,700,000 square feet of commercial space are in the pipeline, including office, retail, medical, hotel, cultural, institutional and educational uses. 12 million of the square footage in the pipeline are for office use. (As of 2013, there were approximately 75.6 million square feet of office space in the city.)
  • 3090 residential units and 280,000 square feet of commercial space have been added in the past 4 quarters. “The median time to completion for these projects from the first filing was 43 months.” For smaller projects of less than 10,000 square feet, the median time dropped to 30 months.
  • 6700 new residential units and 5,400,000 square feet of commercial space are currently under construction.
  • Approximately 25,800 of the pipeline’s residential units are comprised of the Bayview/Hunter’s Point/Candlestick, Park Merced and Treasure Island projects. “Full realization of the projects will be decades into the future.” The Bayview/Candlestick and Treasure Island developments are situated on parcels designated as “Public Land.”
  • Not counting the 3 big projects mentioned above, the great majority of both residential and commercial pipeline projects are currently clustered in the greater South Beach/South of Market/Mission Bay area, the Market Street corridor, the Potrero Hill/Dogpatch area, and the Mission.
  • Approximately 800,000 square feet of manufacturing, distribution and repair use space would be lost in the course of existing pipeline development, to be replaced by housing or other commercial uses.

The full Planning Department Pipeline Report can be downloaded here. There’s also a nifty interactive map illustrating projects in the pipeline. Our sincere gratitude to Aksel Olsen and Teresa Ojeda of the SF Planning Department for compiling this useful and comprehensive report.


The first and third charts below come straight from the Planning Department Pipeline Report. We created the two district-breakdown charts to separate out residential and commercial projects and to reflect more common neighborhood and district names as used in the real estate business (but even then, the names should be considered gross generalizations). And we added a snapshot of the Planning Department map to give an idea of the number of development projects in the city.

This snapshot from the interactive map on the Planning Department’s Pipeline report webpage indicates current projects in the greater South Beach/South of Market/Mission Bay district, Hayes Valley and the Market Street corridor.


*All information included herein is from sources deemed reliable, but may contain errors and is subject to revision.

New Case-Shiller Index Report

The Case-Shiller Index for September was released today. Note that it will mostly reflect sales negotiated in August or before, during the slower summer sales season. (The next Index, published in late December, will begin to reflect transactions negotiated in September and the start of the autumn sales season.) These 2 charts pertain to the upper third of sales for 5 Bay Area counties – upper third by price range. The majority of home sales in San Francisco, Marin and San Mateo are in this upper price tier.

As noted in recent Paragon reports, after the feverish market and home price appreciation of spring 2014, home values in the higher-end neighborhoods typically flattened or ticked down a bit, while more affordable homes generally continued to tick up in price.

Short-term fluctuations are not particularly meaningful until confirmed over the longer term, since markets fluctuate for a variety of reasons including seasonality.

image005

image006