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.

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.

Highs and Lows in SF Home Sales

The SF real estate news site 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.

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

The new February S&P Case-Shiller Index for high-price-tier homes in the 5-county San Francisco Metro Area increased almost 1% from the January reading. This puts the Index up about 20% over the past 12 months, and up about 34% since the recovery began in earnest in early 2012. Based upon what we are seeing in the market, I expect another increase in the March Index. (The Case-Shiller Index is published 2 months after the month specified.)



Snapshot: Russian, Nob & Telegraph Hills & North Beach

Earlier this week, San Francisco was named the third least affordable major metropolitan area, behind only Vancouver and Hong Kong, according the globe Annual Demographia Housing Affordability Survey of 360 housing markets worldwide. Our market snapshot of Russian, Nob & Telegraph Hills and North Beach support that with the median sales price for a condo in Russian Hill  at $1,300,000 in 2013 and average sales price at $1,612,000. Take a look:

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