With new supply continuing to outpace demand, the inventory of homes listed for sale in San Francisco increased 14 percent over the past week and is now running 31 percent higher versus the same time last year.

At a more granular level, while the number of listed single-family homes on the market (181) remains 3 percent higher on a year-over-year basis for the second week in a row, the number of listed condos (288), which doesn’t include the majority of new construction units on the market across the city, is now running 61 percent higher versus the same time last year.

And once again, while the pipeline of development in San Francisco has hit a record 62,000 units of housing, which includes 8,700 units which will be delivered within the next year or two, at least one index for the pricing of new condos is approaching negative territory with respect to year-over-year gains (or losses as the case may soon be).

37 thoughts on “Here Come the Condos”
  1. This sounds like good news for those looking to buy. With the recent turmoils in the equity markets, less-than-stellar news about unicorns (TWTR, LNKD, SCTY, YHOO, etc), and now higher inventory is it likely that we’ll stop seeing 30% YOY price increases?

          1. I stand corrected. Regardless, those publicly traded companies and unicorns will have an effect on housing.

          2. The unicorns are fun to follow for all their unintentional self-parody and slapstick absurdity, but the effect of their collapse will be relatively minor compared to the systemic risk posed by the aforementioned publicly-traded profitless wonders and their ilk.

          3. You’re the self parody here 2B’s. Your antics are getting tiring.

            Sure there’s some unicorn fluff out there, fer sure. But Uber, Airbnb and a few others? Game changers. Serious game changers on a global basis.

            You’re expecting a post 2000 dot com crash, and it ain’t gonna happen that way. Sorry. And high rents are pretty much here to stay in SF. Luxury condos will take a rent hit, but the days of sub $3000 2BR rentals are in the past. Permanent past. (Which is great news for moi, as I’m seeking a prematurely early retirement 🙂

          4. Sabbie- I’d be hesitant to cite a libertarian reaganite crackpot like Stockman, even though he surprisingly gets some things right.

          5. Two Beers, doesn’t matter who the messenger is, the message is the same- it’s last call at the unicorn party. If anyone does not believe, just type unicorn bubble into Google News and choose your favorite source. Kabam laid off 8% today…

          6. To be fair, that stockman site is just quoting Zero Hedge. Itself not without editorial issues. But much of the info there is sourced from the WSJ.
            Interesting that SF based Castlight is the #2 on the IPO loser list. I remember Castlight being heralded as the vanguard of a new breed of SF health-tech companies.

  2. The issue would be, with the likely slowdown and maybe smallish fall-off in prices, how many of these projects will ultimately be built?

    The ones set to break ground yes, but the rest maybe not. But for long-term projects like HP and PM. Builders are mostly building to the high-end market except for their BMR requirements. If that market becomes less sure/lucrative then all bets are off as to what gets built. In some cases The Twin Peaks SFH entitled parcel is now up for sale. Was that a portent?

    This could be God-send in some instances. The VN/Market hi-rise cluster which is shaping up to be an architectural/aesthetic disaster.

    The other factor is the projected job growth? Will SF reach a million in 20 years? Depends on the economy. That is a projection. better it not happen as that alone would take pressure off the housing affordability crisis in SF.

      1. No. Its not better but given the nature of economic cycles and all a slowdown may be coming.

        A narrowing of the affordability gap between the Bay area (several other markets too) and the rest of the country is coming. IMO. That is good for the average working Joe and Jane in the Bay Area.

        1. I think exactly the opposite. A widening of the affordability gap is on the way. Over the last few years a small handful of cities (SF, NY, Boston, Seattle) have ended up as the recipients of large numbers of young smart technically savvy people. Due to the nature of the tech industry, the successful people begat the next generation. I expect these cities to remain wealthy (and unaffordable) for years to come. Yes, it will change eventually, but there’s no sign of it yet. Detroit was still rich in the 70s, even as Americans built sh*tty cars and the Japanese built excellent ones.

          (Not saying it’s a good thing, just observing long term trends)

      2. anona- no it’s better to replace a proven and stable productivity-based economy with an erratic, financialized one featuring a series of greater and more frequent bubbles the benefits of which accrue to an ever-shrinking percentage of the population, as each systemic risk becomes an excuse to implement even more of the same policies that engendered the system risk to begin with.

    1. I bet you eat your morning donut and coffee from that shop at “VN/Market”, and it’ll be a great tragedy in your life if it gets replaced by anything after all these decades.

    2. “how many of these projects will ultimately be built?”

      Depends on if there’s a fall off in demand or just a lowering of the price level at which that demand occurs.

      Builders don’t make money by not building and there are a lot of sunk costs even before ground is broken. Financially though sometimes the original backers get washed out if they can’t get the sales prices they need, but usually someone else will swoop in and buy out the project at a discount.

      Strictly speaking it’s not the final sales price of homes that motivates builders to add supply, but essentially the margin. Would you rather make a widget that sells for $100 and costs you $90 in materials or one that sells for $50 but only costs you $20 in materials?

      A price level drop can cause short term issues with sellers stuck with high loan payments based on high previous valuations and buyers unwilling to buy into a declining market. In the RE market “short term” issues can drag on for years. But steady state it’s entirely possible that even with a price correction we still see plenty of construction in the bay area.

  3. “the number of listed single-family homes on the market (181) remains 3 percent higher on a year-over-year basis” i.e .03 * 181 = 5 additional houses in a city of 124K single family homes.

    “the number of listed condos (288), which doesn’t include the majority of new construction units on the market across the city, is now running 61 percent higher versus the same time last year.” = 288 listings * .61 = 175 additional listed units in a city of 255K non-SFR homes.

    It’s interesting to think about how these changes have an impact at the margin. It would be great if we had a composite view showing transactions by type including distressed sales, listed sales, and new construction sales.

    If some of these additional condos are investor-held product coming to market my guess is that we’ll retain higher inventory at similar price levels (happy-to-wait sellers). Most anyone who bought 3-4 years ago should be sitting pretty in terms of higher rents vs. financing costs. Sell? Sure, but probably don’t need to puke them out.

    1. Keep in mind that we report true changes in inventory, net of sales (i.e., demand), and not simply a sum of new listings on the MLS (which is supply, not inventory).

      In other words, if 500 units are listed in a month, and 500 contracts are written, our inventory metric would remain unchanged. We also account for pending sales and any changes in average closing times.

      1. Of course. If you counted new listings without subtracting sold homes, you would have an ever ascending number of listings…

        1. The point being, if you see an industry chart/report titled “Inventory” which simply compares the aggregate number of new listings from one month to the next, or year-over-year, it’s not only mislabeled but misleading as well.

    2. “5 additional houses in a city of 124K single family homes…. 255K non-SFR homes.”

      The rub here is that these 379K units are all potential inventory and as you point out, it wouldn’t take many deciding to sell to really move the needle on inventory.

      That’s why the ‘happy-to-wait’ seller thing is an illusion. One person may start out thinking he/she will wait, but what about the other 378,999 people? Not to mention all the shiny new units of supply that will keep coming on the market. If you play the prisoners dilemma with 379 thousand random strangers, there’s really only one way that’s going to end.

      You can, however, have widespread belief in price expectations. If nearly everyone believes that prices will forever rocket up, then you think you’re making money just by staying put. So many people may independently decide not to sell. But expectations can go both ways and can shift rapidly. The madness of crowds is a fickle thing.

      1. Of course you could always juice the market and goad buyers into snapping up that inventory by reducing lending standards:

        “Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.”

        Good thing that lowering lending standards and skirting government regulations in the face of weak economic fundamentals has never ever in history produced any unwanted consequences.

      2. True enough, but the average loan written post-crash is much stronger than those written ’05-’08. I found the BofA article somewhat curious too, but up until now lending standards have been much much more stringent than pre-crash standards.

        There are still a great number of tailwinds for SF real estate, including the race to the bottom with global interest rates. Lending on residential housing in California still looks really good in the context of failing oil companies in the midwest and a China that no longer wants every ton of ore in Australia. We’re a port in a storm, so to speak.

      3. The problem with that theory is, then what? Despite all the bad press and hand wringing about San Francisco these days, people like living here. If sellers cash out they’ve gotta know what’s next. If they want to stay in SF it’s going to likely be much more expensive than what they have previously known.

        1. “The problem with that theory is, then what?”

          They move elsewhere. In the past these outmigrants were even labeled ‘California Equity Locusts’ and spurred the creation of ‘Californians go home’ bumper stickers in some areas.

          Some people like living here and some are just here to make some money. And even those that do like it here, might like other things that they could have in a lower cost of living area.

          Remember a mere 18 homes on the market would be a 10% increase in inventory. This is a thinly traded market.

          1. I agree that it’s a thinly traded market, in the margins, and that percentages represent small numbers really. I was speaking to the anon of 2 hours ago who wrote about 379K units all being potential inventory. I’d say no, the vast majority are not, and the reason is “then what?” Not in any one market at any rate ….

          2. I’m both anon’s. The point is that people have left SF and even California in the past and will continue to do so. There was a particularly large exodus during the 2000 tech bust. Some folks love it so much here they’ll never leave. Others may want to cash out their equity buy a home free and clear elsewhere and keep the difference as a nest egg. And some don’t even really like it here and are just here for economic reasons.

            When you talk about the recent bad press and hand wringing, I assume you are referring to Justin Keller’s ‘Riff Raff’ open letter? While over the top and very tone deaf, I don’t think he’s alone in that line of thought and it shows you that even some high income tech people here have serious quality of life issues with living in SF.

            Lots of people here now are non-natives and have roots elsewhere. Cashing out and going home, to the beach, to the country, to the mountains or wherever is a pretty well trodden ‘then what’.

          3. Oh no, I am certainly not referring to that guy’s open letter. I am referring more to the perspective of those who objected to him and his three whole years of SF knowledge. I am referring to the vast amount of articles lamenting that SF has changed so much. Yes, lots of people are non-natives. Lots of people will cash out. Lots of people have quality of life concerns. But most people who live in the 379K units probably will be moving according to their own life needs and not anything else. It’s simply what people do, I think.

  4. I fully expect condo pricing to drop a lot with this glut. And rightfully so. A condo should not be $1M plus (unless really warranted – size or with views). Who likes to pay ridiculous HOAs that cover things that are somewhat discretionary? No one. True SFHs are the way to go!!!

    1. All depends on how much it costs to build new supply. Obviously developers think it’s a winning proposition because their views are long term. It takes how many years for a project from the first plans to completion? 5, 6, 7 years? Some projects will be timed right, others will happen a bit too soon, some too late, but in the end something gets built and developers still do very well on average.

  5. After living here for 40 years, I cashed out and bought out-of-state for all cash, nest feathering, and a shopping spree (pent-up demand). No regrets.

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