In a move which shouldn’t catch any plugged-in readers by surprise, there are now more homes on the market in San Francisco than there were at the same time last year. In fact, inventory levels in the city are approaching a nine-year high which we’ll breakdown next week.

And while net-new listing activity over the past week was nearly even on a year-over-year basis and will likely outpace last year’s volume this week, pending sales activity has yet to rebound and remains down nearly 50 percent versus the same time last year which is driving inventory levels up.

Comments from Plugged-In Readers

  1. Posted by mary_jane_jacobs

    I wonder what will happen to prices as supply increases? When more housing is available for sale, do prices go up or down?

  2. Posted by two beers

    Demand has collapsed, so owners who have to sell will have to accept lower prices. Owners who don’t have to sell will sit on their inflated prices or just pull their units from the market and wait it out.

    • Posted by mary_jane_jacobs

      So you mean when there’s more housing supplied than demanded the price is driven lower and made more affordable?

      • Posted by two beers

        As the editor says, “pending sales activity has yet to rebound and remains down nearly 50 percent versus the same time last year which is driving inventory levels up.”

        The collapse in demand is driving inventory levels up. The imbalance is due to the lack of buyers, not some magical new source of supply.

        • Posted by mary_jane_jacobs

          Any time supply exceeds demand, market prices at the margin will decrease.

          Your and the editor’s insistence that this is incorrect in the case of new construction is charming, but incorrect.

          • Posted by Freeloader

            When has the editor implied that this is incorrect?

            Also, there are several academic papers that show that as supply of new housing increases in “gentrifying” neighborhoods, prices go up not down ie the increased supply creates an even greater increase in demand, making it hard to build your way out of the problem, even if it contradicts Econ 101.

          • Posted by two beers

            The editor is only providing data, and not “insisting” on anything. The editor rarely even gives an opinion. He or she does publish data that make RE pros uneasy. Don’t shoot the messenger.

            “Any time supply exceeds demand, market prices at the margin will decrease” is a tautology. When do prices go down? When supply exceeds demand! How do we know when supply exceeds demand? When prices do down!

          • Posted by mary_jane_jacobs

            The way we know when supply exceeds demand is when for-sale inventory builds, as it did in 2009-10 and as it is just beginning to do now. Prices haven’t dropped in aggregate yet, but it seems likely they will.

            Similarly, if we added 15,000 housing units to the city in a year, we would likely have supply exceeding normal demand at the equilibrium price before the new housing was created.

          • Posted by SocketSite

            Actually, the trend in inventory levels reversed course and started ticking up back in 2015, not just now, at which point a leading indicator of market weakness started to emerge.

            But as always, there are those who can’t figure out they’re falling until they’ve hit the floor (at which point it’s too late to brace for the fall).

          • Posted by SocketSite

            We realize you’e trying to be clever, but it helps to understand how the demand curve typically moves in response to new construction and induced demand. As noted above, think gentrification.

        • Posted by SocketSite

          With respect to the magnitude of the collapse, don’t underestimate the difficulty of securing and closing a sale over the past two months with San Francisco’s stay-at-home order in effect.

          That being said, recorded sales in San Francisco had dropped to a 9-year seasonal low at the end of last year, prior to the pandemic having hit. And while there was a year-over-year uptick in pending sales activity back in January, it was short lived.

    • Posted by scurvy

      Depends on timeframe. People who can sell now are setting high prices because they know there’s a market for people who *must* buy. There always is. These aren’t folks who *want* to buy (who make up the lionshare of a normal functioning market). So the sellers are sitting in a place of advantage and asking a lot and hoping to get a bite. It only takes one sucker.

      5-6 months from now….I can’t say the same dynamics will be in play. Sellers will probably drop prices and start entertaining low-ball offers on the first “open house” weekend.

      • Posted by mary_jane_jacobs

        Can you give an example of someone who “must” buy a house instead of renting? Rent control affords to SF tenants most of the stability of housing costs that is only available to owners in ‘normal’ markets.

        • Posted by scurvy

          MJJ, sure I can give you a few. Anyone who suddenly needs to take care of a sick/infirmed relative into their household (forced multi-generational living). It’s hard to rent places that have more than 2-3 BR’s.

          We owned a 4BR townhome in NOLA that we were renting for $1900/mo pre-Katrina. It was vacant a few months over the summer, people there hate to move with bad skeeters and heat. Post-K, we rented it to Shell for $7k/mo on a 5 year term. The property was high and dry, in a desirable neighborhood. Housing stock was devastated and the waters had not receded yet. Some exec lost their house and Shell took this as corporate housing. They literally, *had* to move.

          There are a lot of other cases you can think of that don’t play directly into supply/demand, but more human necessity.

          • Posted by scurvy

            And before people start naming me a disaster profiteer, here’s the full story: Said Shell exec contacted us and offered us $5k/mo because that’s what his stipend was. Literally shoved money in our faces before we could say a word. When we got down to the contract he called back and said, “I actually checked and the stipend amount is up to $7k/mo so that’s what I’ll pay you.” The initial term was for 2 years, but it was extended another 3 since his family loved the location and townhome and didn’t want to move again. His contract was for 5 years and then they moved back to the UK. Model, once-in-a-lifetime rental tenants. Exceptional, yes, but it happens and that’s my point.

          • Posted by tipster

            Didn’t you just prove the opposite? Someone needed a 4br and didn’t buy one, even during an exceptional time period.

          • Posted by scurvy

            Tipster, he had a free housing stipend and was prepared to spend it. Trust me, he was fearful that we were going to evict him so he kept offering to pay more and extend the lease. He kept saying that the UK had terrible tenants rights and that people there could get tossed out on the street easily. I mean, the guy just moved his family to a new country mere weeks before and their housing was literally wiped away. He was pretty desperate. Sellers are hoping that plays out here, too. It’s easier to buy a 3-4BR SFR than it is to rent one in SF (at least from what I’ve seen).

            The juice for renting was way better than selling at the time. Sales were essentially halted as no one would write flood insurance policies and you couldn’t get a high value mortgage without flood insurance. We did end up selling later, but the money from that rental was wild.

        • Posted by sockettome

          mary_jane – As there is no rent control for houses in San Francisco and as families tend to prefer houses, they might fall into the slice of the market scurvy is referring.

      • Posted by mary_jane_jacobs

        I do agree with you and “two beers” that prices will settle at a level that reflects a temporary equilibrium between buyers and sellers.

        You know, like Economics 101.

        • Posted by heynonnynonny

          It sounds like you took Econ 101 recently – did they discuss central banks and the importance of inflating nominal price levels?

          • Posted by mary_jane_jacobs

            Who cares what central banks are doing? But low, sell high, fear, greed, etc..

          • Posted by two beers

            MJ- so you believe interest rates have no effect on RE markets? Oh, my…

            .

        • Posted by Brahma (incensed renter)

          Did you actually pass Economics 101? Are you just assuming that the Ceteris paribus assumption holds?

          • Posted by mary_jane_jacobs

            @Brahma: Yes, but more importantly I have made a lot of money buying and selling real estate. It turns out that if you buy when lots of their people want to sell, things work out well. Also, if you sell when lots of other people want to buy, things work out well then too. But don’t let my crass observations interfere with your being incensed.

  3. Posted by sfnative

    I’m 1000% sure that it doesn’t matter what happens to the prices to real estate agents just as long as they (l)earn their abc’s.

    • Posted by mary_jane_jacobs

      This isn’t a site that agents particularly like. If you google a little you’ll find evidence to support this comment.

    • Posted by The Milkshake of Despair

      Volume is the primary driver of commissions. Price is secondary. Sales volume will be down for a while. Let’s hope for a quick recovery.

  4. Posted by Anna

    I wonder if magnifying SF’s supply/demand imbalance is/will be what other urban cities are reporting, which is that people are moving into less densely populated surrounding suburbs driven by the corona virus environment.

    • Posted by Ohlone Californio

      Where are you seeing reports of people leaving cities for suburbs do to the new world ushered in by the corona virus ? Reports?

      • Posted by Ohlone Californio

        due to, that was … and I think I now see what you meant. You meant the anecdotal editorials that are going around with bigger headlines than raw data, coupled always with more equivocating type quotes later on in the piece. Stuff like this story: Get me out of here! Americans flee crowded cities amid COVID-19, consider permanent moves. People looking to flee NY for the Hamptons earlier. New Yorkers moving to LA, etc. I thought there might have been some actual study or reports.

        • Posted by frink

          Yeah, I mean that article quoted noted real estate perma-bear, Lawerence Yun. I’m sure that the National Association of Realtors has some sort of economist type person who will swoop in and correct all this bearish craziness of people leaving expensive dense cities that are hotspots of a pandemic disease.

          “People will be much more cautious about living in high-density areas with so many people nearby,” predicts Lawrence Yun, chief economist at the National Association of Realtors.

          Wait a second……

          • Posted by Ohlone Californio

            Oh are we being sarcastic online among relative strangers? how 2003 type droll.

            Is San Francisco a hotspot of a pandemic disease? Is Detroit a dense city? Is there a lot of buying going on, anywhere?

            Was this not also in the piece? Was it not in keeping with what I’d written? : “To be sure, economists say it’s still too early to tell if urbanites browsing suburban homes on sites like Zillow and Redfin and taking up temporary shelter in less densely populated areas will develop into a broader trend once the pandemic is contained. But recent sentiment among homebuyers suggests attitudes toward moving to the suburbs is shifting. “

          • Posted by Brahma (incensed renter)

            I don’t know, seems to me that frink is pointing out that arguments against one’s own interest are more convincing to skeptics. And it’s not just the Chief economist at NAR. Manhattan faces a challenge if working at home becomes common, I read this quote from a a high-end NYC real estate agency regarding office towers across Manhattan:

            “Is it really necessary?” said Diane M. Ramirez, the chief executive of Halstead, which has more than a thousand agents in the New York region. “I’m thinking long and hard about it. Looking forward, are people going to want to crowd into offices?’’

            This would be like if the CTO of the Toyota Motor Corporation publicly said that battery electric cars were superior to hydrogen fuel cell-driven cars. That statement of opinion would carry more weight than if Elon Musk said the same thing.

          • Posted by Ohlone Californio

            Why would lots of people selling in cities and buying in the burbs be detrimental, in the view of a national real estate figurehead? Wouldn’t that hypothetical look like a great amount of urban volume, albeit at lower prices? Wouldn’t it be that, plus a greater amount of volume in desirable exurbs or less dense cities, driving up price in those areas? Why would that be a bad for a national tradesgroup?

  5. Posted by tipster

    Twitter:Work From Home is Permanent. You can now live anywhere in the world, they won’t require you to come back to the office even after the lockdown.

    Twitter CEO Jack Dorsey emailed employees on Tuesday telling them that they’d be allowed to work from home permanently, even after the coronavirus pandemic lockdown passes. Some jobs that require physical presence, such as maintaining servers, will still require employees to come in.

    https://www.buzzfeednews.com/article/alexkantrowitz/twitter-will-allow-employees-to-work-at-home-forever

    • Posted by sparky-b

      Who wants to work from home all the time? Not me. I find it to be so much less productive and I get tired of the food options when they are the same at lunch and dinner (not a thing now, but in the future it will be again).

      I see people working more from home, but not full time. And will that trend create the need for the dueling home offices feature?

      • Posted by The Milkshake of Despair

        I used to think that WFH was not for me until this spring. It only took a few weeks to change my mind. My organization was already 100% set up for remote work (VPNs, laptops, etc.) and because we’re global we already spend a lot of time on the phone, webex, and email. The only part I miss is working out complex design problems on the whiteboard with colleagues.

        Add to that, our organization’s productivity is actually up, allaying management fears that we would slack off if nobody was watching.

        • Posted by Notcom

          A good scientist – perhaps in your case, a dilligent beverage – should lay out the control parameters (are there children or pets present?, SFR vs. condo vs. apartment, etc). In my own experience each venue has its own distractions: at my house I wander off to my library, at work I fritter away time on real estate blogs…

          • Posted by The Milkshake of Despair

            Good point. I had the dumb luck of this mess coinciding with the near completion of a garage annex which is for the moment my home office. It started out with no heat, unfinished floors and walls, electrical from an extension cord. Desk is a slab of scrap plywood on sawhorses. Primitive but palatial. And getting better every week.

          • Posted by Notcom

            Congrats on the fortune of good timing…you probably won’t be needing heat until the dead of summer.

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