While the number of purchase contracts signed for new condominiums in San Francisco quintupled from 18 in January to 95 in February with plenty of seasonality in play, the sales volume was down 25 percent versus the same time last year and is running 7 percent lower over the past three months versus December to February the year before.

At the same time, the inventory of new construction condos available to purchase has ticked up to around 1,100, which is 62 percent higher on a year-over-year basis according to data from The Mark Company.

And having slipped another 2.4 percent in February, the Mark Company’s pricing index for new construction condos in San Francisco is now running 9.5 percent lower on a year-over-year basis and has dropped 16.0 percent from its August 2015 peak.

Keep in mind that there are 6,200 units of housing under construction across the city, which does include both for sale and rental projects, and the overall inventory of homes listed for sale in San Francisco has ticked up to a five-year high.

57 thoughts on “New Condo Pricing Continues to Drop in San Francisco”
  1. Is the twisty building around the corner from here (Spear/Folsom) really breaking ground? The lot is cleared, but I dont recall seeing anywhere that is was actually going into construction? Anyone know.

    Timing is ticking faster on this cycle! You know its true when Oakland suddenly starts building and approving bigger things….always at the end.

    1. As we first reported last year: “Assuming San Francisco’s Board of Supervisors approves the [purchase Agreement for the site, which they did], the sale is expected to close escrow in the first quarter of 2017. And per the Agreement, construction is then required to commence within 30 days and finish within four years, which would be March of 2021 at the latest and likely in mid-2020 based on Tishman’s own estimates.”

      1. Thank you Socketsite! This building is going to fill in the last undeveloped lot along spear from market to the bridge and totally be awesome!

        1. They are starting excavation in April, so next month and expect to be finished by April 2019. Sales will begin in second half of 2018, if you want to plan for that. And it’s getting valet parking, as apparently based on survey’s, it’s the most desired amenity these days.

          1. I’m really curious to see how the 40% BMR affects the value of the market rate units.

          2. @SFGuy, or, if the markets goes down, how the price of the market rate units affects the value of the BMR units. We’ve seen this movie before…

          3. I would never let a SF valet touch my car. In Bel Air, sure, they see and park nice cars all the time. But look at the average Luxe driver….no chance.

          4. 40% BMR is just awful. Having lived in a building with BMR units, it’s just not good in any way for the market rate unit owners – avoid at all costs! Just ride in the elevator and its obvious who is who, no to mention BMR owners being way more likely to be delinquent in HOA payments, violating CC&Rs more than others, etc. Basically they were disliked (or worses) and would not be given the time of day by market rate owners. Why mix the two groups?

          5. I’m not sure this building is overall 40% BMR. My understanding is that just the additional units gained by allowing the building to be 40 instead of 30 stories are 40% BMR.

      1. Home price appreciation in the last 12 months has been around 10% in Oakland and just 1% in SF in the last 12 months, according to Zillow.

  2. “pricing index for new construction condos in San Francisco is now running 9.5 percent lower on a year-over-year basis ”
    “the sales volume was down 25 percent versus the same time last year”

    The facts of a pricing drop going with a large volume drop is very consistent with much of the past demand being momentum driven. i.e. Artificial demand was created by rising prices, because everyone wanted to get a spot on the SF RE rocketship. Demand plummets when prices weaken, because far far fewer people can and/or want to endure capital losses from these lofty heights.

    These results are not consistent with the tales of herds of able and willing buyers waiting on the sidelines for a slight pricing dip in order to jump into the market.

    1. The rapid appreciation in prices of these past 5 years seems to be over. And perhaps over for an extended period. More importantly, other metro areas are growing at a faster pace in terms of population and jobs. And in terms of appreciation. The stats are out there – Forbes list of the 20 best RE markets for purchasing and investing does not include SF/the Bay Area.

      As to pipeline projects, at what point the overall price drop will cause some projects to be abandoned depends on many factors. It has not happened yet – other than some developers putting entitled projects up for sale rather than building them out. Its likely there will be more of those this year. A complicating factor is that entitlements come with a timeline – often 3/4 years – to get shovels in the ground or the entitlement lapses.

      Developers/investors at a more general level will look to markets, other than SF, with greater anticipated appreciation over the next decade for their new projects.

      Its possible a prolonged shake-out in SF residential/condo development is coming which will impact the 64K or so units in the development pipeline. Many of these projects are likely not to see the light of day.

      1. does your last sentence apply to projects in the east and south bay pipeline? would these start to not-pencil-out more quickly than SF projects? really hoping that the Oakland projects finally happen and dont die on the vine!

        1. I think the brunt of any construction downturn will occur in SF. Largely because its had the largest appreciation and is significantly overbuilt in the high-end housing market. Other areas will indirectly be impacted but not as much.

          The factor that will impact all of the Bay Area going forward is the larger population and job growth occurring in other metro areas. Over time this will slow BA development and especially relative to the currently booming metros.

          Projects like HP Lennar and Park Merced which are going to be built out over 20 years plus will be OK. Its some of the nearer term projects that may not get built. For instance the proposed skinny residential tower on Howard. Parcel F is more long term and should be OK – the big impact could be a prolonged downturn/leveling in condo prices which could possibly lead to a re-imaging of the project.

          1. “The factor that will impact all of the Bay Area going forward is the larger population and job growth occurring in other metro areas.”
            Lower Real Estate costs could have an opposite impact. Cheaper housing (and office space) could accelerate SF job growth, as more companies find it affordable to keep the entire workforce in SF, rather than move functions to Utah, Oregon or Arizona.

          2. “Lower Real Estate costs could have an opposite impact. Cheaper housing (and office space) could accelerate SF job growth, as more companies find it affordable to keep the entire workforce in SF, rather than move functions to Utah, Oregon or Arizona.”

            Except RE is very, very sticky on the way down. For many reasons, the simplistic and cliche textbook S&D models don’t work with RE the way everyone who has taken two semesters of Econ think they do. There’s no sudden snapping to a magical market-clearing equilibrium. SF RE will crash, but it will happen slowly, and the refusal of many owners to adjust will both prolong and deepen the crash.

          3. “Except RE is very, very sticky on the way down.” But is it?

            Look at the last boom/bust cycle. If anything, the slope of case-shiller prices on the downside seems even steeper than the slope on the upside.

            The notion that RE prices are sticky may have been fueled by people looking at medians rather than prices and in the more distant past by people ignoring the effects of inflation.

          4. “SF RE will crash, but it will happen slowly”

            Wait a second. Firstly, By definition, a crash is fast and sudden. Does anything crash slowly? Secondly, If the market is gradually cooling (down 15% for condos from summer 2015 peak), then this disproves the theory of a ‘crash’. The opposite of a crash is not a rising market, but a gradually cooling one. Looking at any evidence, this is what we’re seeing so far.

            Regarding the ‘crash theory’, I guess because real estate crashed in 2008 and Tech crashed in 2000, seeing them boom at the same time in 2014-2016 simply evokes memories and reflexes that suggest a ‘crash’ must be around the corner.

          5. “(down 15% for condos from summer 2015 peak), then this disproves the theory of a ‘crash’.”

            Look again at the last cycle, the market kicked along the top for a number of years before beginning a serious decline. So I don’t see how a current 15% drop of part of the market would ‘disprove’ a crash.

            It takes time for perception to adjust to reality. Some fraction of buyers and sellers may still think they are dealing with a market rocketing upwards.

            And even your ‘gradually cooled’ 15% drop would put someone essentially 20% underwater when you account for selling costs. Think about what that means financially for your 10x levered nurse buying into a marginal neighborhood.

            And while the last few tech&RE boom/busts have been quite dramatic, SF has been a boom-bust town since the gold rush. Is it more likely that this cycle will continue vs that this particular boom is the one which will never bust?

          6. Question for you. The RE market has dipped 10-15% while we have raging all time highs in the stock market, super low unemployment, and rising consumer and business confidence. Everything is awesome according to the mainstream narrative. In addition we have plenty of easy lending again. So the question is, how much do you think the market will fall when there is an actual recession? Remember those? It might take a few more years but a recession always comes. Whatever that number is, when you add it to the 10-15%, it will certainly add up to a crash for those who bought at the peak.

          7. People on this website have been predicting a crash is right around the corner since, when, about 2012?

          8. @SFRealist – They were probably Apple & Google engineers who’ve spent the last decade huddled up in double occupancy SRO’s just waiting for a market crash to jump into the market. Plus I hear that each one will buy 10 Pied-a-terres in the Bayview if the market does crash. That should offset any drop in demand from the tiny number of bay area residents that aren’t Google and Apple engineers.

          9. Lots of people were predicting a crash in the sub prime bubble starting in 2003-2004, just because it took a few years to happen doesn’t mean they were wrong. Although in hindsight market tops are often associated with a single aha moment like the fall of Lehman Brothers, in reality they are drawn out processes. And we’re in it right now, make no mistake.

            The cause is always the same, excessive exuberance and easy credit. Even though the stock market is currently the most overvalued outside of 1929 and 2000, I could see another 30-40% higher blow off top right now before the final crash.

            The problem is that most people are not paying attention, because the media is 90% owned by six mega corporations who exist to return max profit to shareholders, and guess what, they want you to SPEND SPEND SPEND that easy money!

            [Editor’s Note: And now back to the trend in the new condo pricing index or at the very least the condo market in general…]

          10. “The RE market has dipped 10-15%”

            Guys, the CONDO market in SF has dipped by 10-15% since it’s absolute peak in summer 2015. Prices for SFH in SF have still been appreciating in 2016. Other Bay Area RE markets are still growing (looking at you, Oakland). The South Bay is doing just fine. So the only place and segment where prices have come down from an absolute peak is the SF condo market. It is also the only market which has seen a substantial increase in new housing supply.

            So where is the crash guys? I’m happy to change my mind if you can point me to some empirical evidence rather than theories about the psychology of sellers, buyers, techies and developers.

            Also, we’re not seeing a 15% ‘drop’, if it happens over a period of 1.5 years. It is a great headline, but market crashes develop over months, rather then years. It also follows the fallacy of taking the top or bottom of the market as a reference point. This magnifies every swing up or down, but it doesn’t lend itself for long-term decision making.

          11. And even that supposed condo dip is based on the “the Mark Company’s pricing index,” which is a completely non-transparent measure of new condos only based on nothing discernible from a company that is trying to sell the condos at issue and thus has biased motives. That this “index”, as mentioned below, showed a gain of 12 percent from the beginning of 2015 to August 2015 discredits it pretty convincingly. Case Shiller’s condo index shows a 3.75% gain since that August 2015 “peak.” I suppose it’s possible that the new condo market has crashed while everything else continues with moderate gains, but that is quite unlikely.

          12. Come on. Anyone who predicted a “crash” in 2003 was wrong, unless you are signing up for the “even a stopped clock” theory. In most markets, a buyer in 2003 would have seen appreciation, maybe significant appreciation, unless they sold at the very bottom of the market.

          13. It’s not a broken clock situation if they accurately called the reason for the crash. It’s one thing to say the sky is falling and quite another to pinpoint the loose lending practices that specifically were creating a bubble.

          14. So what is the reason or root cause of this next impending housing crash? You’ve pointed generally to “excessive exuberance and easy credit.” Where is that showing up? Certainly not in household debt or mortgage debt, as is easily verifiable from Fed data. They are currently at the low ’80s levels. Contrast the 2004-07 period when both debt measures skyrocketed.

            Give us some sort of model that could lead to this crash – something beyond “cheap Fed money will end” which doesn’t move the ball at all (in addition to not providing much of a useful premise).

          15. “Give us some sort of model that could lead to this crash”

            De-stabilizing dynamics where price movements in one direction feedback and cause increased movements in the same direction.

            Rising prices make everything affordable to anyone who can get into the market. And the perception of a hot market with rising prices increases buyer interest. So demand is artificially boosted on the way up. And credit loosens on the way up (we’re now back to having Zero down loans up to $2M in SF, BTW).

            But at some point when the market turns, all these factors reverse. Dropping prices scare off buyers and drastically reduces the affordability of holding onto real estate. Lenders see and feel this happening and constrict credit. People with low or no equity in their homes have a much weaker attachment to keeping them so are much more prone to adding to supply during a downturn.

            High prices encourage new supply to come on line, as we’re seeing now with waves of new condo’s hitting. But this takes time, particularly in cities like SF with large barriers to new construction. And while construction is coming online the supply existing homes can also exhibit a “backwards” De-stabilizing response to prices. (See: “Toronto’s Housing Boom Refills Empty Nests, Driving Prices Even Higher“)

            And don’t focus too much on the specific reason of kids moving back in preventing sellers from selling. More generally during a rapid boom prices are going up everywhere, so even if people wanted to cash out where would they move to? And if they think their equity is rising with every passing week, why not just wait for more money? So high prices reduce supply for a while.

            But again, all these factors reverse when prices drop. Prices tend to drop much more in 3rd tier and outlying areas which provides a great opportunity for prime area owners to cash out and move out. Plus now with pricing dropping and waves of new construction coming online, sellers really start feeling the clock ticking on their top of market valuations.

            Also, investments have both a capital gain and a ongoing profit/loss component and housing is no exception. If a condo is throwing off a strong cash flow (or a tech company throwing off a large profit) that’s a stabilizing factor. In both cases that allows sellers to wait out market downturns and take their time finding a buyer. But for both condo’s and tech companies, this stabilizing factor of great financials (Cap Rate or P/E) is missing which puts you much more at the mercy of the above mentioned de-stabilizing factors.

          16. To summarize: at some point prices will eventually start dropping and then will snowball because that is how things work.

            Not much to hang one’s hat on there. And that is not what led to the 2008-2012 crash. I’m not saying a price drop, or even a crash, is impossible. I’ve just seen nothing concrete (or even plausible) to explain the mechanism for it given current economic conditions with a booming economy, low interest and household debt rates, strong lending rules in the banks (zero down may available but only if the borrower has a ton of assets, high earnings, and stellar credit), and a strong stock market.

          17. This is truly the Fed Bubble, or Everything Bubble if you will. Future generations will look back in disbelief. Over the past eight years, we doubled the debt, in other words we raised it more than all presidents throughout history combined. The Fed still has some $3T in MBS on its balance sheet. We are creating around $4 debt for every $1 of growth, but that’s mostly going to the One Percent so you can’t look at per capita anymore. If you think this equals prosperity then you must think I am doing great by running up $300k on my credit cards. Check out the wealth to income ratio.

            The SF market got especially bubbly because the perverse incentives created by artificially low rates coincided with the VC startup mania and yuan devaluation.

            But today you can see cracks appearing in: department store traffic and CRE especially malls, restaurant traffic, wage growth vs inflation, student and auto loan defaults, online lender defaults, corporate loan growth stalling, productivity growth stalling, luxury markets like Manhattan housing are tanking, Bloomberg startup barometer down, etc. The stock market when compared to M2 money supply, disposable income, and other such indicators of economic health is at all time high ratios, not to mention overvalued by any sort of price to performance ratios. And if you really want to see what’s coming down the road look up the Triffin Dillemma.

            And yes they lowered the credit rating for subprime from 660 to 620, and 36% of govt backed loans issued in 2016 have mortgage insurance. Subprime is alive and well too.

          18. Not much more useful. To paraphrase: National debt has gone up –> {cloud of undescribed chain of events and causation, involving the yuan and Fed asset purchases in some unspecified manner} –> housing prices will crash.

            That logic will work on zerohedge but not in the real world. Again, the prediction may be spot-on, but I’ve seen nothing but gobbledygook to explain how it will supposedly play out. Last time, the prediction made sense: banks are lending trillions to homebuyers who have no hope of ever paying it back –> this is driving up home prices, leading to even higher lending to homebuyers who have no hope of ever paying it back, as evidenced by skyrocketing household and mortgage debt levels –> like any ponzi scheme, the fun eventually stop, and there will be massive mortgage defaults as overextended buyers can’t pay and can’t sell –> the housing market crashes. That’s a plausible model. People didn’t agree with the premises and accept it at the time, but it at least made sense. “Stuff will crash because it just must” is not a plausible model.

          19. “To summarize: at some point prices will eventually start dropping and then will snowball because that is how things work.”

            They don’t always work that way, but they sometimes do.

            Your home thermostat works to keep a constant temperature because it has a stabilizing dynamic, negative feedback is the term of art. The higher the temperature gets above the set-point, the more it cranks up the AC. Which drives your home temperature back down.

            But what if you hooked up a heater to the AC port of your thermostat, positive feedback in the term of the art? The hotter your home gets, the more the thermostat cranks up the heater. Which makes your house even hotter, which causes the thermostat to apply even more power to the heater,…

            So the model for when you’d have a boom/crash situation vs placid stability is when the positive feedback factors outweigh the negative feedback factors.

            And for empirical evidence, people rush the stores on Black Friday because goods are being sold at a discount. Lower prices increase demand which is a stabilizing dynamic. But here we have a 9% YoY drop in price met with a 25% drop in demand. Lower prices dropping demand.

            I agree that this is just one data point from an opaque source. But it’s very consistent with the boom/bust dynamics I mention above and it doesn’t stand alone with weakness in rent prices and an increase in SF price reductions.

          20. Note also that one reason that retail and restaurants are suffering is because people are doing their shopping online. Which is very good for Apple/Google/Amazon and which money flows into the Bay Area (and Seattle) economy. That helps our real estate prices.

          21. Your thermostat analogy is a very, very good one for the last crash. Because banks would lend to anyone, there was no stabilizer. I.e. when prices rose, people just borrowed more “no down” money from the banks and kept feeding it.

            But banks don’t do that anymore. Try to get a mortgage loan. The underwriting is quite strict. Thus, the normal housing stabilizers are in place. If things get out of whack pricewise, sales will slow and prices will fall until they reach a point where buyers start buying again. That is healthy.

          22. The mechanism is simple math. There are only three ways to handle this massive overhang of debt which is a drag on current growth. 1. even faster growth (not going to happen) 2. inflation (difficult and dangerous) 3. deflation (the usual scenario). This is brought on by a black swan moment when everyone suddenly realizes the music has stopped and there’s not enough chairs for everyone to sit down. It’s called a black swan because it can’t be predicted by even the smartest guys; if it could, people would become jillionaires by doing so.

            If you’re not into math, there’s also probability. There’s never yet been a period of economic growth in the history of the world that has not ended with a period of contraction. In the US, the historical average is 39 months. We are well past that. Sure it could be different this time because Google and cell phones or Central Bank omnipotence, but the odds are minuscule. And if local real estate has already softened in the good times, then common sense dictates that it will come down even more in the bad times. And regarding Amazon, that would not explain why retail was on a good upswing from 2010-2015.

          23. From 2010 to 2015 Amazon, Apple, and Google were growing a lot. The way that people buy good these days is very, very different than in 2010. That will mean continued deterioration of malls and continued money flowing into Bay Area companies and Bay Area real estate.

      1. Just foreign money? What about the big pot money from owners of legalized recreational marijuana trades? They would be an example of all cash buyers should they choose to invest some of their cash holdings into real estate. Tech boom followed by pot boom.

        Anyone know how the pot industry affected the Colorado real estate market?

        1. Will be interesting to see whether the current administration allows this to continue, given our President’s financial conflict of interest in this area.

          1. That should have been in response to Sabbie’s comment, not Amewsed’s. Regardless of what happens with marijuana legalization, Trump makes a lot of money from foreign real estate buyers and I am skeptical he would continue a ‘crackdown on foreign funny money.’

        2. Hehe, maybe in Boulder. It could conceivably give the SF market a push once Prop 64 is implemented. But then there’s Jeff Sessions, who claims pot is bad because Lady Gaga said so.

          Right now I’m watching the Snapchat IPO, which is way down from the initial price. That’s gotta be demoralizing for all the local tech companies watching from the sidelines. So many tech workers are putting in long hours for the promise of stock riches, this is going to introduce a lot of doubt, and doubtful people don’t rush out to buy houses, confident ones do.

          1. Never change Sabbie! Always take the latest Tech news and extrapolate implications for a long-term market like Real Estate.

            Mobileye just sold for $15bn to Intel. Can you please put that through your model and let us know what the psychological effects are on tech workers and what it all means for the SF real estate market?

          2. Yes we all know smaller tech companies are regularly gobbled up by the big established sharks who are sitting on tons of cash. That’s one way to cash out. But quite often, that results in some layoffs or other negatives for the employees. And it seems like the other way of cashing out, IPO, is not doing so great.

          3. NASDAQ hit a record high a couple weeks ago and is up 23% in the last year. Tech bros. are not sweating it much. Party on.

          4. Mobileye is a NYSE traded company generating ~30% net profit, though ~$15B is a heck of a price. SNAP is still valued in the range of IPO roadshow prices and has been holding a value north of $20 Billion. Heck of a price for non-voting public stock in a “camera” company that loses ~$500 million a year.

            The tech IPO window has been tight for a couple years or so, but private investors have been floating nearly eternal lifelines to the momentous among us. FWIW, NASDAQ is ~20% below the previous peak, inflation adjusted. SF class A office rents are also/coincidentally ~20% below the previous (dotcom) peak, inflation adjusted. Party like it is 1999, but differently this time.

          5. Isn’t Mobileye based in Israel? And profitable? And already public?

            So how does a takeover of a foreign public company by another public company relate to the fate of SF pre-IPO startups losing money by the bushel?

    1. Well it probably doesn’t help that Caltrain electrification funding has been delayed, since it both increases capacity and greatly increases air quality at the SF and SJ stations (you can smell the diesel exhaust in some surrounding buildings at 4th and King depending on the wind conditions).

  3. Here is a “used” condo since that 2015 so-called peak. 8 Octavia #304 sold new for $1,000,000 in Feb. 2015 and just sold again at $1,205,000. I guess one could argue it went up 36% between Feb. and Aug. 2015 and it’s fallen 16% since then (but not with a straight face).

    1. Any (Alpha) thoughts on how Hayes Valley might have changed over the past two years as well as the market for modern architecture?

      And to factually answer your (Beta) snark, the pricing index gained 12 percent from the beginning of 2015 to its August peak.

      1. Does this “Mark Company’s pricing index” exclude Hayes Valley? If so, it isn’t of much use, is it? If not, then are condo prices in other parts of SF down 20%? 25%? Show me one of these bargain condos!

        That is to say, you really should stop putting any stock into this index. Whatever it is, and nobody knows, it is of no worth. I understand it is all you’ve got to support your thesis of crashing prices, but that doesn’t mean you should glom unto something so meaningless and unreliable.

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