No mention of San Francisco in today’s New York Time’s article about the impact of speculators exiting the condo market (“Farewell, Condo Cash-Outs“), but it’s still relevant. And worth a quick read.
While investors made up only 9.5 percent of residential mortgages nationally in the 10 months through October, according to First American Corporation’s LoanPerformance, a San Francisco mortgage data firm, the numbers are much higher in places like San Diego, where investors represented 13.5 percent of residential mortgages, and Miami, where they were 16 percent.
Hans Nordby, research strategist at Property and Portfolio Research in Boston, said those numbers underreport the real level of speculation in those markets because many buyers disguise their intentions when they get their mortgages. As those speculators flood the market, he said, they will put pressure on other sellers to cut prices, too. “A rising or sinking tide affects all boats,” Mr. Nordby said.
Still, a sell-off in speculative condos is unlikely to start a widespread housing crash, because condos were more overbuilt than single-family homes during the recent boom, said Joseph Gyourko, professor of real estate and finance at the Wharton School of the University of Pennsylvania. But weakness in the condo market, he said, “is a consistent indicator that the great boom has really ended.”
Perhaps now would be a good time to familiarize yourself with SocketSite’s growing New Developments archive.
∙ Farewell, Condo Cash-Outs [NYT]
∙ San Francisco Perspective: Condominium Developments [SocketSite]
∙ QuickLinks: New Condos On The Market (Or In The Works) [SocketSite]
The San Francisco condo market has not been known for a lot of investing or flipping. Just take a look at The Beacon, for example — very very few resales, and with prices so high, there aren’t many rentals there either. With almost every building 100% occupied (The Beacon, St. Regis and Watermark are alost sold out), and with most of those units being owner occupied, I don’t see us having the sorts of problems that Vegas or Florida are starting to see. It seems there is still a large demand, especially for the entry level buyer.
Damion – any perspective/insight on why some of the more recent developments (such as 1725 Washington or 1635 California) seem to be struggling, and why we’re getting mixed messages about the strength of sales at the Watermark? And just because a unit is “owner occupied” doesn’t mean it wasn’t a speculative purchase made with short-term financing.
As far as pent-up demand from entry-level buyers, we completely agree. But relative affordability is not the same thing as absolute affordability.
First, the Watermark. My opinion is the marketing was a disaster. The sales office opened during the peak of 2005, but with only a 1 percent co-op commission! I spoke to several agents who, at the mention of the Watermark, would be completely dismissive. What agent, with a $1 or $2 million buyer, is going to refer them to a place paying just one percent, when other properties in the neighborhood with views and amenities are paying the standard 2.5 or 3? So they got off to a bad start, and now they’re offering 2.5%. Furthermore, their ad campaign is completely lackluster. They have really done nothing to inform the public of their existence — which is absolutely crucial since they’re all by themselves out their by the edge of the bay! AND the Mark Company was competing with itself! Look at what high end condo developers are doing in New York, Miami, Las Vegas — parties, celebrity appearances, designer branding, buyer incentives. You can’t just print some ad in the paper and a few magazines. You’ve got to sell!
Having said that — I think the Watermark is doing okay. Occupancy doesn’t begin until April and it’s something like 60% sold out. But keep in mind that the real thrust of those sales are in two-bedroom view units over $1 million.
I don’t know anything about 1725 Washington, but my sense of 1635 California is that it’s a neighborhood problem. Who is the target buyer there? If it’s the young condo buyer, that neighborhood is far from the radar. They don’t go north of Market. I’m just not sure who they’re trying to sell to there. And like it or not, in new developments, that kind of branding really matters. So, as with the Watermark, I blame the marketing team. Absolutely no creativity in their campaign. What is it — a picture of the California Street cable car, or something? Please.
Re. the Affordability Index — do you think the dip from 55.4% in Q4 2004 to 50.8% in Q4 2005 is significant enough to account for the recent slowdown?
Damion – great perspective and comments on the Watermark, thank you. I do have to note, however, that 60% sold is a far cry from 100% sold (regardless of the marketing missteps).
And as far as the affordability index, although I really don’t think the change from 2004-2005 is significant (and I’m more focused on the 9% number), I do believe that it is starting to have an impact in absolute terms (i.e. continuing to thin the ranks of potential first-time buyers).
I was on The Watermark’s interest list and took a look at the place last September. The impresssion I came away with was that they thought they were doing me a huge favor giving me a little of their precious time, because, as they never ceased to remind me, they had a huge list of interested people… Anyway, I decided to pass because I wasn’t convinced that the surrounding development of the cruise terminal etc would be completed in a timely fashion.
Not sure I buy the neighborhood problem argument regarding 1635 California and 1725 Washington. There are several apartment buildings within range where apartments were selling well last year.
Have to agree with Colin – it’s not the neighborhood that’s the problem with 1625 California or 1725 Washington (2 blocks to Whole Foods, abundant public transportation, easy access to both upper and lower Polk, and walking distance to entertainment galore). Nor do I think it’s a marketing problem. It’s a pricing problem (too expensive for entry-level buyers, and too cramped for people trading up).