Having jumped 15 percent over the past week alone, the net number of unsold homes listed for sale in San Francisco (715) is now running 56 percent higher versus the same time last year, the greatest year-over-year increase we’ve recorded since the market tanked in 2008 and the highest inventory level for this time of the year since 2012.

At a more granular level, the number of listed single-family homes on the market jumped to 283, up 36 percent on a year-over-year basis, while the number of listed condos, which doesn’t include the vast majority of new construction units on the market in the San Francisco, jumped to 432 and is now running 73 percent higher versus the same time last year.

Once again, Redfin’s assessment of San Francisco’s housing market being “overheated” last month week was based on a year-over-year increase in inventories of less than 5 percent. And price reductions are on the rise.

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Comments from “Plugged-In” Readers

  1. Posted by Sunset94116

    And the slowdown begins. The housing market has hit its peak and people are trying to sell and take the money and run. It is now being reported that population growth will also slow.

    • Posted by San Fronzischeme

      I can see this happening, simply by looking at it from a cyclical point of view. The top in the US was in june 2006 and it dragged on into 2007 and 2008 in SF due to local strength. But then the music stopped and the bottom was reached March 2009. Then we churned into inventory until december 2011. Then prices went straight up for 4 full years.

      Typical cycles call for 2 years of softness and 6-7 years of sustained growth. The last crisis was systemic and very deep. The upcoming softness will be less intense I think. Some of the issues of the last crisis were not addressed, but the economy is stronger and more sustainable. Plus our region is the winner on a few global fields. That counts for something.

      • Posted by Sabbie

        Can you name three indicators that show the economy is “stronger and more sustainable” than it was in 2008 before the crash?

        • Posted by San Fronzischeme

          Not a fixed numbers, but the quality behind the numbers. Because low unemployment and decent growth means nothing if it’s built on phantom money. Growth from 2004 to 2006 was mostly fake. People who bought 200K homes in Modesto would refi a year later with 50K cash out, pay the mortgage with the cash out for 1 year + buy a new car, then 1 year later would do it again, and again, and again. People spent the borrowed money they didn’t know how to repay long term, which created jobs, more speculation, more make-believe activity. The music stopped very painfully. Today our growth, however tepid, is based on reality. Is it perfect? Nope. I wished we’d have been more Keynesian, but the GOP stopped that from happening. We have the next best thing: a mechanical recovery on sounder ground.

          • Posted by Sabbie

            “Today our growth, however tepid, is based on reality.” The best rebuttal to this incorrect statement is simply the word “unicorn”.

          • Posted by San Fronzischeme

            Sable,

            The dot com bubble was built on the back of Y2K investments. Everyone upgraded their systems, a massive bubble was blown, then burst painfully. But the survivors of this bubble are the juggernauts of today. In the post-bubble years they kept on growing, absorbing talent and technology left over by failed companies.

            When these behemoths grew after 2004-2006, they attracted more talent, and also created more wealth which was transferred through venture capital, personal ventures right at the time of the mobile revolution. Look at your life in 2006 and think about the clunker you had in your pocket. Today we have a mature mobile environment, with a lot of gains in productivity and efficiency in many aspects in our lives. Are there excesses? Absolutely! Are there insane or unsustainable ideas being funded? Yes and yes. But it was built on the top of the previous cycle.

            Every floor built in our tech mecca stabilizes the previous one, and lays the ground for the next floor.

          • Posted by two beers

            “I wished we’d have been more Keynesian, but the GOP stopped that from happening.”

            Nope. Obama had a Dem congress for his first two years, and he had an historic mandate and could have passed whatever he wanted to. You can’t blame the GOP clowncar for this clusterf*ck. Obama and the Dems own it entirely. He was advised to push for more fiscal stimulus (and to re-regulate the banks, and to prosecute Wall St fraud), but he chose not to. Instead, he went with the most massive monetary stimulus ever seen, with the entirely predictable result of renewed asset bubbles of the exact type that caused the Great Recession to begin with, which is why anyone paying attention knew the Obama economy was as fake as he was. An important lesson to learn from this is that Democrats who act like Republicans can do more damage than Republicans.

            “We have the next best thing: a mechanical recovery on sounder ground.”

            Nope, we have an economy based on 1) a stock market in which much of the gains of the past few years can be traced to record stock buybacks (which used to be illegal, for good reason), and 2) a cheap-money fueled, VC/hedgie-led SaaS bubble which is the prime engine behind local RE values. Meanwhile, real wages for most Americans who can even find a full-time job keep declining, meaning there will be no demand for the disruptive pizza on-demand apps that the kids in the Mission are so good at coding.

            Good luck with that “sounder” economy.

          • Posted by San Fronzischeme

            two beers,

            Obama had a mandate for 2 years out of 8. For the first year or so he was busy plugging the holes of a sinking ship that the simpletons before him had accidentally created. Then he prioritized his healthcare reform and spent all his leftover political capital on getting this passed. His BIG mistake was to naively think that Republicans were reasonable people. He preemptively met them 1/2 way and had to make more concessions. It’s easy to look back in 2009-2010 from the safety of 2016. But the world as we knew it was supposed to end…

            Now is our economy “more sound”? Growth and opportunity has moved in the past decade. Geographically (the West Coast is on the winning end), in terms of social classes (less need for unskilled labor). It you are an uneducated mid-westerner, life is much harder today than in 2006 when all you needed were your hands and a hammer to make a living.

            And wage growth on average is not that dismal. It’s actually getting better since the magical 5% unemployment is pushing employers to compete for talent (again, not everyone is a winner).

          • Posted by two beers

            If you use the more accurate U6 instead of U3 for unemployment, the rate’s 2x as high. And apart from SaaS, most of the new jobs are low-paying crap service. Much of the SaaS employment has been VC-funded; few of these companies are profitable, so they are “ghost jobs” that will vanish as the banks and investors demand their pound of flesh.

            “It’s easy to look back in 2009-2010 from the safety of 2016”

            Nonsense. The post-Keynesians described exactly what was going to happen at the time and what could be done to prevent it. But assets were blowing up again, so people who stood to get richer quicker didn’t want to hear that the program compounding the problems the caused the crash to begin with.

          • Posted by Ohlone Californio

            Obama had a fillibuster proof mandate for like four months, during his first year in office, OK? The guy was probably reaching across party lines and trying to govern during that first year. That was his mistake. But the whole concept of the 2 year mandate thing is not based in reality.

        • Posted by JR "Bob" Dobbs

          Here are three:

          Household debt to GDP
          Real GDP per capita
          S&P 500

          I’m not one to argue that everything is rosy and there isn’t a problem in the world. But you asked for 3 indicators. OTOH, I’m no chicken little. And as I’ve been saying for about a year, I’d caution anyone looking to buy in this market to only do so if one could weather a fairly significant downturn, as the odds of that are not trivial. Rising listings are a leading indicator of weakness. It will be interesting to see the MLS sales figures to see if buyers are keeping up with sellers.

          [Editor’s Note: When seller and buyer activity match, our inventory counts are flat as we track and report true inventory (existing MLS listings, plus new listings, less MLS sales) versus simply the gross number of listings added to the MLS.]

          • Posted by Sabbie

            H/H debt – yes.

            Real GDP per capita – not sure. From 2007-2016 we’ve only grown a third of what we did from 2001-2007. You could say it’s more sustainable, or you could say we are in weaker position for the next recession?

            SP500 – no, already overvalued based on historical P/E so does not meet the sustainable criteria.

          • Posted by San Fronzischeme

            I do not think we can easily compare 2007-2016 with 2001-2007.

            2001 was the year of the small recession that GWB stopped with his funny economics of massive tax cuts followed by the start of the credit bubble (give money to his friends, and appease the masses with promises of riches through debt). Yes the top of the cycle can be either 2006 or 2007, but to make a fair comparison, you’d have to pick the start of the next cycle, which is the 2009 bottom. Also you could pick GDP/capita and get a totally different picture.

            GDP/capita in 2001: $44,687, in 2007: $49,060 or a 9.8% increase
            GDP/capita in 2009: $47,280, in 2015: $56,300 or a 11.9% increase

          • Posted by anon

            You can’t ignore the massive monetary stimulus that has been occurring though.

            GDP just measures economic activity. Not necessarily useful economic activity.

            Lowering risk free interest rates makes capitol search elsewhere for yield. Maybe that elsewhere is useful and maybe it isn’t.

            People could have used the cash out refi and other easy capitol from the lending boom for useful purposes that would have provided a sustainable economic base, but they mostly didn’t.

          • Posted by anon

            Just the other day, someone was on here advocating buying property at 8x income (in the Bayview no less!) based on the affordability of payments due to our current low interest rates.

            The difference to the economy between people buying homes at 8x income courtesy of crazy IO loans and the like during the housing bubble and people buying homes at 8x income due to rates held low due to monetary stimulus might not be that significant.

          • Posted by Sabbie

            Exactly. This latest bubble has been blown by corporate and public debt as opposed private debt. Productivity is down to levels not seen since the 1980s, while corporate debt to GDP is way up, public debt to GDP is off the chart. Companies have used 95% of gains since 2009 to buy back their own stocks, while VCs are funding ten companies expecting that maybe one will succeed. Meanwhile the Fed has doubled its balance sheet. You call that sustainable?

          • Posted by San Fronzischeme

            Sabble,

            Nothing is ever sustainable per se. A recession doesn’t last forever, just like an expansion also has a limited shelf life. There are wastes, inefficiencies and counter-intuitive decisions being made all the time and they always become harder to sustain the more we go into the cycle.

            But what counts is that we do not go back to a 2008-2009-type collapse in the next downturn. Will it happen again in the future? Of course it will. Humans are greedy and short-sighted. Will it be the pattern of the current cycle? I do not think so, even if you raise a lot of good points.

          • Posted by Sabbie

            I think it will be worse than 2009. 1. the average household is worse off today 2. the Fed is out of ammo, can’t take rates any lower this time 3. real estate has much greater intrinsic value than Tech 2.0 does, even Tech 1.0 probably had much greater intrinsic value than Tech 2.0. At any rate, someone here said they would start getting nervous when Apple had a “sustained drop”… well today marks its longest losing streak since 1998, does that qualify?

          • Posted by Dave

            I don’t think many are expecting as big a drop as 2009. The loan situation is much better (no LIARS) and the RE uber-appreciation is concentrated in a few markets. Many markets are still below their 2008 levels. Sacramento for instance.

            But recession is a possibility. I listen to the curmudgeon Kudlow’s radio show and he is talking a possibility (30%) of recession. He also is talking the stock market bubble, buybacks which create nothing – though he points out it is legal. He also points out real wage growth is almost flat since 2000. Too he calls out falling profits and poor productivity gains.

            The signs are increasingly there and started last fall with the VC funding fall-off among other things.

            Its time to be cautious – especially given the recent irrational exuberance which is a contra-indicator.

      • Posted by Moose

        Great response San Fronzischeme. I think you’re dead on.

        • Posted by two beers

          ” I listen to the curmudgeon Kudlow’s radio show and he is talking a possibility (30%) of recession. He also is talking the stock market bubble, buybacks which create nothing – though he points out it is legal. He also points out real wage growth is almost flat since 2000. Too he calls out falling profits and poor productivity gains.”

          I can’t listen to that clown, but if a free market ideologue and Wall St true believer like Kudlow starts paraphrasing the post-Keynesian critique of the economy, we really have gone into bizarro world. Of course, his solutions are entirely wrong, just more of the same that got us into this mess (i.e. deregulate even more, cut taxes even more, lower interest rates even more).

  2. Posted by Pero

    I’d love to see a breakdown of listings by SF neighborhoods over the past 2-3 years. I’m wondering if the increase in unmet inventory is limited to certain parts of town. Also, are days of inventory on the market increasing? If yes, is it happening across the city or just in certain parts? Thanks

  3. Posted by curmudgeon

    My highly scientific test for market turning events is when a One Rincon Hill tower comes on line. Tower one was finally completed in 2008, leading to much angst among those who had put down deposits in headier times (and perhaps one too many “Gincons” at the initial marketing events in 2006). Now Tower 2 has just opened for sale with “sensational design by Ken Fulk”. It’s the end.

    • Posted by Dave

      Tower Two was indefinitely delayed back in the day due to the economy.

      Another sign might be seeing condo towers already entitled and expected to break ground soon put on hold. That has not happened yet, though several entitled projects have been put up for sale in the past 6 months (Mt. Sutro projectfor one).

    • Posted by Futurist

      Ken Fulk is an interior decorator, nothing more.

      • Posted by AnonArch

        What does Ken Fulk have to do with this? I do agree he is a “decorator”, certainly not an architect.

  4. Posted by jimyleo

    Crumudgen – You win the prize for the most fitting name! What do you mean Finally? Tower one was completed in a timely manner. In fact I moved in ahead my originally schedule completion date. FYI on average, units in tower one have more than doubled in market value since the building opening! Tower two has been open for a couple years. First as a high end rental and, after the ownership group sold it for a San Francisco record $400 million, the new ownership has gone back to condo, which was its original purpose. Yes, the “End” will mean a correction may take place and we will only have a 90% appreciation rather than 100%. Of course, that too, will be short lived because there will always be more demand for housing in SF than supply!

    • Posted by SFRealist

      Shhhhh, there’s a narrative in place. Don’t interrupt the narrative with facts

    • Posted by curmudgeon

      Just being humorous….take it with a grain of salt. But for the record folks who bought into Tower One were almost immediately underwater upon purchase, given the events of the time.

      Certainly in hindsight it was a great investment, but it wouldn’t have been if you had to sell in 2009, 2010, or 2011 probably (and I believe there were foreclosures in Tower 1). I’m sure it took quite a lot of fortitude to hang on through those early years for many.

      Tower 2 was delayed, and then opened as a rental. I’m referring to the fact that only now are individual units being marketed for sale. And now it’s being marketed with similar excess, IMHO, to the initial marketing of Tower 1 (and yes, I agree with Futurist for once that Ken Fulk is nothing more than a decorator).

      Time will tell…but I do think that it marks the end of this cycle. Not Armageddon. (and congrats Jimyleo on holding if that’s what you did…that was clearly the wise thing to do).

  5. Posted by Steve

    A big reason is because 100’s of TIC’s turned into condos from the lottery bypass a few years ago. It took my building a long time to get that done. And a few of the people have sold.

  6. Posted by soccermom

    What have apartment and home rental rates been doing?
    Have prices come down? Is it cheaper to rent now than 1 year ago? Thanks.

    [Editor’s Note: As we reported last week (and it would appear that you’ve read): San Francisco and East Bay Rents Little Changed Last Quarter. The week before: Price Reductions for Condos in San Francisco on the Rise. And the week before that: Price Index for New Condos in San Francisco Flat Year-Over-Year.]

    • Posted by Sabbie

      The reason people watch other statistics beyond price alone is that they often function as leading indicators. When higher supply meets steady or falling demand, that will typically lead to falling prices in the near future.

      • Posted by soccermom

        Which leads ‘people’ to ask if prices are actually falling, which I am doing. Has that ‘near future’ yet arrived? It would be a fairly strong confirmation signal.

        @Sabbie You’ve said that you own rental real estate despite your bearish view on housing prices in San Francisco. What are rental rates doing in areas where you have rental properties? Are they up/down/or flat?

        • Posted by Sabbie

          I think rents have been starting to come down a bit at the low and high ends, but steady in the middle. I fully expect them to drop soon though, because of the crazy amount of new construction, combined with the turning economy. Not worried personally, since I only made modest rent increases. Greedy landlords that increased rent to the max however will experience the same as the dot com bust- tenants asking for a rent reduction and/or moving out.

          • Posted by Serge

            @Sabbie: Tenants may ask for a reduction (which is not a bad scenario) or re-tenanting the space seems reasonable. Especially you were able to milk them for high rents during the time they were there. May even be a blessing in disguise for some landlords (for instance, they want to live in that space without an OMI).

          • Posted by SFrentier

            I agree that there are greedy LL’s renting total POS’s at high rents (esp in the mish), and that high end rentals will take a big hit, but lower end will be safest. Good rentals in D10 may not drop at all. Where else can you rent a decent 3/2 in the city for $3300-3500? Should be safe sailing there.

          • Posted by Sabbie

            SFRentier, what do you think will happen when rents in the more expensive areas come down? People who settled for District 10 because that’s all they could afford will trade up for a better neighborhood at a comparable price.

          • Posted by SFrentier

            Not linear. Plus floor, there is a floor to rents. i.e. a $7k SFH in Noe dropping to $6k ain’t gonna motivate my BV tenants to bail on their ~ $3.5k pad. Things’ll have to get bad, really bad, before the inexpensive SF rentals drop. Like 2008 bad, which I don’t think is in the cards at all. Matter of fact, I predict a mundane “recession” in one or two years. Bloom off the tech hype, a more sober, slower SF, but not much more than that. Most people still working. No biggie. Don’t worry, be happy 🙂

    • Posted by curmudgeon

      various stats have been showing rental rates stabilizing with no real appreciation of late. The new places coming on line have begun offering a month free rent as well (which I think is pretty standard except in the hottest of markets).

      • Posted by curmudgeon

        from Zumper: “San Francisco rents remained steady this month at a median of $3,590 for a one bedroom apartment. Two bed units were also stable, down a slight 0.4% to $4,850. Prices for both types have increased a moderate amount year over year, each between 5-6%.”

        • Posted by SocketSite

          Or as we reported last week: San Francisco and East Bay Rents Little Changed Last Quarter.

          At the same time last year, asking rents were up 13 percent on a year-over-year basis and East Bay rents were accelerating.

          • Posted by soccermom

            Are your stated prices asking or effective? What’s the source?

            Do you have data on single family home and/or smaller buildings?

            How much of the San Francisco market is represented by the 50+ unit market on which your prices are based?

          • Posted by SocketSite

            Try re-reading our piece.

            Movements in the institutional market tend to be more meaningful than movements in an index based on an aggregate of one-off listings (such as Zumper’s).

            And believe it or not, units in large buildings compete with units in smaller buildings and have to be priced accordingly.

          • Posted by soccermom

            I see you are quoting asking rents. I should have read more carefully the first time. Did the article state where you sourced these prices? You watermarked the table image, so I imagine it is data you are tracking in-house.

            I understand that big buildings compete with little buildings. I suppose your answer means you have no reliable data on buildings and homes under 50 units.

            If you could tell us what % of the overall rental market is composed of ‘institutional’ units, we could make a better decision about whether your assertion that “Movements in the institutional market tend to be more meaningful than movements in an index based on an aggregate of one-off listings (such as Zumper’s)” is correct.

            All in all, it seems like your sources and zumper concur that rental prices are little changed in the recent past.

          • Posted by SFrentier

            Sorry mr. Socketsite, but large 50+ bldgs don’t necessarily track small bldgs accurately. Reason? Most 50+ Bldgs are post 79 condos, renovated, with amenities, parking, etc. Smaller bldgs are all over the place. Example: a 2br in fancy soma tower today rents for $5k; in a smaller bldg next door (un renovated, no parking, etc.) rents for $4k. Rents soften. Fancy condo drops from $5k to $4.2, workhorse unit drops form $4k to maybe $3.8. So if/when the rental market softens, the institutional stuff will show a higher decline in rents.

            And no, there isn’t decent reported data on regular rental bldgs. Just CL/etc aggregates of asking rents, which is also an indirect indication of rent rate changes (but can be a good indicator of how many LL’s are still high listing wishful rents.)

    • Posted by soccermom

      Here’s a price data source that Larry and Sergei found for me. Not sure on the reliability of the data but I suspect it relies on code written by earnest young men who refer to ‘big data’ repeatedly in their powerpoint decks. Looks like rents are still generally in an uptrend with some seasonal fluctuations.

      • Posted by anon

        Looks like that’s asking, not effective rents. During hot times with multiple applicants, the winner usually pays over asking. If curmudgeon is correct that landlords are offering concessions that’s an anecdote showing weakness or effective rents.

        People are often slow to drop their asking price.

        • Posted by two beers

          “People are often slow to drop their asking price.”

          Many commenters here seem to think that the “law” (sic) of supply and demand means that the occurrence of an oversupply or declining demand cause an instantaneous movement towards market-clearing price “equilibrium” (sic). For them, the absence of this instantaneous “correction” is proof that there is no oversupply or declining demand (let alone more serious underlying systemic issues).

          If you rely mainly on the concepts of market-clearing prices and equilibrium to try to understand housing, you might wind up with a confusing story.

          • Posted by HousingWonk

            The average commenter here thinks sticky pricing refers to the cost of a pad of Post-It Notes at OfficeMax. Let alone understand the degree to which housing tends to be sticky-up, which is how absent broad macroeconomic events, real estate pricing tends to flatline in periods of decreasing demand rather than fall outright. Not all goods are the spot price market for West Texas Intermediate crude.

          • Posted by curmudgeon

            sale prices are sticky on the way down. rent prices aren’t all that sticky. In the dot com bust they dropped substatiallly, and quickly. Yes, larger landlords will try to use devices like one month free rent to get folks in the door but preserve nominal rents, but even advertised rents will drop relatively quickly if overall vacancy increases due to a bust.

  7. Posted by anon

    How long do you think it would take for an increase in housing inventory to reflect itself in rental rates?

    If unsold homes jumped 15% just in the last week, would you expect to see changes in rents today?

    Wouldn’t this be like having an inventory increase in March and then pointing to home price data from Dec-Feb and saying “Look! Inventory is up, but prices haven’t changed!” Thanks.

    • Posted by sfcommie

      The rents are already down. My highly unscientific test for rents shows that the number of craigslist listings for 1br+ rentals below $3000 is approaching 1000. It was about 400 last year.

    • Posted by Pero

      Markets for 1bd condos and 3bd/2br houses are two different pairs of shoes. Families with kids won’t start looking at 1bd condos if prices fall from $3k to $2k. It is very plausible that new construction of smaller units lowers prices in this segment but keeps prices for larger apts and houses stable.

    • Posted by sfcommie

      2brs are down too. Effective rents for some units at the Civic and 333 Fremont, for instance, are now below $4000. 1mo free promos abound.

      • Posted by HousingWonk

        Families with kids by and large are not the market for 2BR rental apartments in San Francisco anymore, at least not in the downtown, Mid-Market or SoMa locations you quote. (might be a slightly different thing in Outer Richmond, for example) The market for 2BRs in SF are childless households composed of 2 or more unrelated adults.

        Would expect it to be a somewhat different story in the for-sale 2BR condo market.

        • Posted by sfcommie

          3br rentals are rarity in SF and not too many care about it. No need to waste so much wonky energy on it when discussing the market.

          • Posted by Pero

            Sfcommie, the supply of 3bd apt IS very important as it represents the only alternative to single family homes in the city. The stock of single family homes is pretty much fixed. As long as demand remains stellar, prices for single family homes will remain high, even if we build 10’000 new 1 bd condos over the next few years.

  8. Posted by soccermom

    How long do you think it would take for an increase in housing inventory to reflect itself in rental rates?
    ->Not sure, depends on the nature of the ownership and use of the housing stock. What do you think?

    If unsold homes jumped 15% just in the last week, would you expect to see changes in rents today?
    ->Again, not sure, but rental rates are another data point that tell observers about demand for housing. I’m interested to learn if various markets (rental and ownership) are moving in the same direction.

    Wouldn’t this be like having an inventory increase in March and then pointing to home price data from Dec-Feb and saying “Look! Inventory is up, but prices haven’t changed!”
    ->I’m asking about price signals from the rental market. You comparison seems to address the timing of changes in inventory and the impact on subsequent sale pricing. I am asking a different question.

    Thanks.
    ->You’re welcome.

    • Posted by anon

      I think that any transmission mechanism between owners unhappy with the sale market and then deciding to “wait it out by renting” would be slow. A few startups have outright failed or done layoffs so far. If that happens in large numbers I’d expect a rapid transition to the rental market just like in the first dot com. Though as I mentioned before, asking prices are slow to change, first you see free rent or other concessions, then rentals under asking. General startup malaise probably has a slower transmission method. People stretch their budgets more for rent or purchase when they expect to soon be stock option millionaires. But they are slower to downscale their lifestyle when those expectations change. One way this happens is by adding roommates which does put supply on the market rather quickly.

  9. Posted by Dave

    Another anecdote – per Caldwell Banker, estimated prices in the Mt. Davidson area have slipped slightly for the past 2 months now.

    Whatever algorithm they use (comparable listings and such) I’ve gotten their e-mails for 3 or more years now and this is the first time there has been a drop. Two months in a row to boot.

    Mt. Davidson is not considered a desirable area by many but it is still a solid neighborhood. I don’t know if the CB estimates are off or if the neighborhood is an outlier in experiencing SFH price declines for the past several months.

  10. Posted by Grubber2

    I welcome you all to search Craigslist for the Lumina (as I noted a few weeks back) and you will find a shocking number of owned units, never lived in before, for rent now with some units now showing asking rent price reductions. This reflects speculative small scale real estate investing (units purchased new with no intent to ever occupy) which is a typical characteristic of an unhealthy real estate market.

    Back of the envelope math indicates that these small scale investors are seeking, in some cases, less than a 2% annual yield (capitalization rate) on their investment with the obvious hope that the underlying asset will appreciate in value since a 2% annual yield is roughly equivalent to a bench mark 10 year treasury. This does not portend a good outcome for some of these folks.

    • Posted by Dave

      Didn’t the Lumina just open last year? This kind of RE investing is crazy IMO. Little to no ROI. Banking totally on appreciation – as if the big uptick these past 4 years will continue for the next four.

      Beyond that, to the extent the Lumina and such are used as investments or as part-time residents it reinforces the belief of some that the construction of uber-expensive condos that has taken place in the last several years in SF does not to help the average San Franciscan. Unless one is lucky enough to win the BMR lottery.

    • Posted by HousingWonk

      Any way to tell % of units at Lumina sold to out-of-town buyers, and in particular, foreign buyers? Depending on country of origin (I’m looking at you, 1%-ers from China, Russia and Middle East), as long as the underlying asset doesn’t decline in value over time (absent short term declines), then the ROI from the rental income stream is just gravy. Owning real estate in the U.S. (especially if you use an easily formed shell LLC to own the asset) is a nice way to hide your money overseas from your quasi-corrupt home jurisdiction governmental and taxing authorities – plus a heck of a lot safer than buying real estate in your home country.

      • Posted by Dave

        But it does nothing for the typical San Francisco worker. If SF is going to provide safe havens for foreign investment as you posit then I am all the more for Peskin’s 25% mandatory BMR requirement.

        Let’s afford safe havens for just a few San Franciscans too.

  11. Posted by Confused renter

    This is welcoming news to home buyers. The market has been inventory constrained for close to a decade. More choices = less competition.

    Let’s see if the excess inventory can be absorbed by the market.

  12. Posted by JR "Bob" Dobbs

    Paragon [namelink] has some useful, more granular data, including April. Highlights:

    Prices are up YOY measured by median, average, or avg/sf.

    Places continue to move quickly, with days on market and months of inventory continuing to be very low (although a bit higher YOY).

    Active inventory is higher YOY, but it appears to be driven more by lower sales than increased new listings.

    Market for houses is stronger than for condos.

    Again, no present evidence that prices are doing anything but continuing to climb by a few %. But declining sales is a leading indicator of a weakening market. No bargains now.

    If I were considering selling, I might jump in now. If I were considering buying, I’d probably sit tight – I don’t see anything that leads me to believe prices a year from now are going to be any higher than today in real terms, and they could be lower by an amount that makes the wait worth it.

    • Posted by Pero

      How can I find the article from which you are quoting the data? E.g. Can you give us the title that we can google? Thanks

      • Posted by soccermom

        Hover your mouse pointer over the author’s screen name for the comment. This is the ‘namelink’ tool.

  13. Posted by MKP

    would it be possible for socketsite to do this analysis on oakland? this house might make a good post, as I am guessing it went for over $1m (and is a beautiful house to boot!….in a neighborhood that 20 years ago was ground zero for the crack epidemic).

  14. Posted by Sergio Giannoni

    From a listing agents’ prospective, here is a breakdown.

    SF Districts 1-10 Total Single Family homes available is 276
    Homes below $1.5million = 156 homes
    Homes between $1.5mil-$2mil = 33 homes
    Homes above $2mil+ = 87 homes

    If you take out district 10, which has historically been the least desirable district:
    SF Districts 1-9 Total Single Family homes available is 221
    Homes below $1.5million = 103 homes
    Homes between $1.5mil-$2mil = 31 homes
    Homes above $2mil+ = 87 homes

    The $1.5million threshold is an affordable price point for a married professional couple in SF.

    • Posted by confused renter

      >>The $1.5million threshold is an affordable price point for a married professional couple in SF.

      The last part should read married professional couple with no kids. Nannies, day care, private schools, and maternity leave add up. Sure a professional couple could afford a $1.5m mortgage, but why have 1/2 of your take home go straight to the bank?

  15. Posted by Sergio Giannoni

    That’s correct, a kid or two will take a huge chunk from your take home. A majority of the buyers today are contemplating having a family, have a baby in the oven, or have 1 child.

    The $1.5mil buyer, with 30% down is looking at a monthly payment of $6500/month which includes taxes and insurance. IF you have the down payment, a couple could make $160k annual salary combined and be able to make the payments.

    • Posted by Confused renter

      You do realize that the same couple can make maybe $140k combined elsewhere in the country and pay at least half of the home price. See the article above why so many locals want to move.

    • Posted by anon

      “The $1.5mil buyer…$160k annual salary combined and be able to make the payments.”

      So that’s 9.4x Income.

      Last time banks eased up on lending to let people buy at 9x income. Now we have the Fed pushing down interest rates letting people buy at 9x income.

      “History doesn’t repeat itself but it often rhymes”

      • Posted by Serge

        What is considered a healthy multiplier of purchase price to income?

        • Posted by soccermom

          The conservative argument would simply be ‘the lower the better.’ However, if we are considering assets that people purchase over time, the prevailing interest rates are far more important, and the cost of ownership as a fraction of income is the ratio that most people (lenders, particularly) will care about.

          So does that mean if we get mortgage rates down to 2% from 4%, then every house should be worth twice as much, since (assuming constant income) the hypothetical buyer has the same fraction of his income available for housing? Well, it probably shouldn’t but it kind of does in practice. This is how we juice our economy with monetary policy (low interest rates) instead of fiscal policy. Congress is frozen, but the Federal Reserve generally maintains a sense of common purpose and outcomes.

          Jake can probably dig up some historic ratios of housing prices vs. income for you.

          • Posted by Sabbie

            I’d say healthy is not so much the question, relative is more important. Is it really worth living in a City where the ratio is so much higher than other places?

            Regarding rates, I’d rather buy at higher rates and lower prices. Chances are you’ll be able to refi down in not too long, and mortgage interest is deductible.

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