San Francisco Condo Towers 2016

For the third month in a row, and following a trend we first noticed emerging last year, the price index for new construction condominiums in San Francisco, as compiled by The Mark Company, has dropped on a month-over-month basis and is now running 11 percent lower versus August 2015.

At the same time, while the inventory of unsold units in new developments across the city (1,100) is now running nearly 60 percent higher on a year-over-year basis, new condo sales in San Francisco totaled around 60 last month, down 5 percent versus the same time last year.

And despite the uptick in available inventory, the overall pace of new construction sales in San Francisco is running 34 percent lower in 2016 versus the first eight months of 2015.

Comments from “Plugged-In” Readers

  1. Posted by AJ

    Good start to a healthy correction. Looking to new construction to put downwards pressure on the rest of the market

    • Posted by j ramos

      good for us all 🙂

    • Posted by j ramos

      NOW CAN ALL THE RUSH TO BUILD AT ANY COST proponents look back and understand why SF gov. sets aside affordable and middle income housing when developers insisted on all luxury, they thought if they build it they will come? only to a point, balance in development and everyone would have benefited, instead glut, vacancy and price drop. If only some new construction was mid level, they would have sold ALL AT TOP MARKET PRICE, that ship has sailed

      • Posted by DM

        Yes but… “mid level” new construction wouldn’t be like what has been built. You’d hear loud complaints about cheap finishes, cheap everything. You can’t satisfy ’em all.

      • Posted by NorthBeach

        I’ve read your comment over and over, and I don’t understand what you’re saying.

        When the market drops (if it is … I would like it if it did, but I’m not convinced yet) those luxury apartments (with high-end finishes etc) become available at better prices, and the losers are those developers who timed their construction wrong. That would suggest that building luxury housing is/was great for the city, since we’ll get high quality at a low price.

      • Posted by Ohlone Californio

        today’s luxury is tomorrow’s mid level

  2. Posted by Drew

    Excellent news!

  3. Posted by curmudgeon

    The fact that so much of the new construction is rentals rather than condos is interesting. Clearly should be showing a similar impact in rents (we’ve seen flattening but not much of a drop in measures like Zumper), but also without the “push” from higher and higher rents that should also be impacting the for sale market. Although clearly the most direct impact on the for sale market is net new job creation and IPO events.

    [Editor’s Note: San Francisco Rents Slip, East Bay Rents Climb. And as noted by a reader below, most published measures in the rental market are for asking, versus effective, rents.]

    • Posted by catowner

      Anecdotally, I recently had to move into a 1 bedroom apartment in SF, and in the month that I took to look, rental prices (asking) in the nicer parts of Inner Richmond and Inner Sunset decreased by about 10% for many units on craigslist. I wish I could have waited longer to move, because it seems to me that prices are still dropping, with available units staying on the market longer.

      There was almost no competition for rentals, with me being the only person to view the places in a span of several weeks.

      • Posted by moto mayhem

        people generally list higher than actual rental price on craigslist to see if they can get suckers early. CL prices are not real prices

        • Posted by incog

          As the editor said, effective rents makes for a much better stat than asking rents. But during a boom or upswing, you get swamped with rental applications for any open unit and the actual rent will tend to be higher than asking. It’s during downturns and corrections that asking rents are slow to drop and larger landlords try to throw in concessions (free month’s rent, extra storage, utilities,…) and effective rents drop below asking.

      • Posted by j ramos

        when your 1 yr lease is up, rent will be even less, hope you get a good deal 🙂

    • Posted by DM

      Most, if not all, new residential multi-unit rental construction is/has to be built to condo standards. The owner will then be able to condo convert when the market cycle inevitably shifts.

  4. Posted by anon2.5

    Would the market research firms capture rental discounts such as first month free? Because that effectively cuts the rent by 1/12 on a one year lease.

  5. Posted by ohmy

    How long will the long slow slide last? Wonder who and what is at risk….can’t believe any developer would want to put a shovel in the ground right now.

    • Posted by j ramos

      true, REIT investment portfolio will suffer, last investment right now is real estate

  6. Posted by Dave

    This is good news as others have commented. Perhaps it foreshadows a fall off in SFH prices – or at least a flattening which seems to be unfolding given recent smaller price gains.

    How much of a drop-off would imperil new condo projects set to break ground in the next year? Such as the luxury condo/hotel tower paired with Oceanview? 15%? 20%. It depends of course on what the developers and lenders have baked into the project books. Were they projecting ongoing price increases to follow the 2015 peak? If so then some of these yet to break ground luxury condo towers may not

    Any impact, if there is one, won’t be known until one of these upscale condo projects is officially put on indefinite hold. As was Rincon 2 back in the day.

    • Posted by soccermom

      “What should we expect from the San Francisco condo market going forward? After a long period of very tight inventory, recent trends suggest that some relief is in sight. Also, with new construction ramping up over the last year across the city, newly constructed condominiums will supplement existing inventory. Figure 9 tracks the unsold inventory index across price ranges for homes listed on the MLS. And while it appears that inventories of existing condominiums are rising across the price spectrum, at about a 2 to 2.5 months’ supply of inventory, there is still a long way to go before San Francisco reaches its historic average of a 3.9-month supply. Inventory of new units remains historically low, and there are just 1,101 new units available for sale today, compared with approximately 3,000 units available in 2007.

      Looking forward, only 672 new units are expected to enter the market by the end of 2017. This marks a 48 percent decrease from the number of units that have entered or are expected to enter the market in 2016 and a 7 percent decrease from the number that entered in 2015. During the previous cycle, 1,519 units began selling in 2006, and an additional 1,591 were added in 2007. In addition, future inventory in upcoming developments consists of predominantly small, neighborhood projects where the average size of developments is less than 100 units. Currently, 450 units are under construction and not yet selling in the South of Market neighborhood.

      What does this mean for condominium buyers in San Francisco? More predictable prices, normalization of market conditions, historically favorable mortgage rates, and more housing options for buyers to choose from. That comes as a welcome break in a city where the housing-affordability crisis has become nearly synonymous with its name.”

      From Pac Union

      • Posted by curmudgeon

        Yes, speaks to my comment above….we’ve got a historically large number of residential units being built, but most of them are rentals. Doesn’t appear we’ll ever have nearly the condo overhang we had in 2007/8, when some folks were walking away from their deposits on One Rincon.

      • Posted by SocketSite

        And to quote The Mark Company this morning, “while average prices are up due to an influx of higher-priced new homes, the Index indicates that a new condominium sold today would sell for 11 percent less than an identical home sold one year ago.”

        But speaking of Pac Union and their forecasting prowess, care to guess what the firm’s expectations for the market were a year ago? Here’s a hint, the words “strong” and “healthy” were prominently featured (while we were taking a rather different tack).

        • Posted by soccermom

          Not quite sure what to do with “while average prices are up due to an influx of higher-priced new homes, the Index indicates that a new condominium sold today would sell for 11 percent less than an identical home sold one year ago.”

          For me that’s kind of like saying, ‘I have a auto pricing model based on the 1990 Honda Civic.’ My model indicates that a car sold today identical to a 1990 Honda Civic would be 11% cheaper. Does that mean cars are cheaper? It might if you could buy a brand new 1990 Honda Civic. Can you? Or do you have to buy a 2017 Honda Civic with airbags and a touch screen and stability control. You still pay more for the car that’s being sold today. 4% more in the case of new condos.

          If you’re going to slam Pac Union, by all means, but note that they have parterned with the Mark Company now. If you don’t like their data, you don’t like your own source.

          [Editor’s Note: We’re not slamming the data, only the ability to understand what the data actually means and to accurately forecast the trends.]

          • Posted by incog

            “Not quite sure what to do with “while average prices are up due to an influx of higher-priced new homes, the Index indicates that a new condominium sold today would sell for 11 percent less than an identical home sold one year ago.””

            Think median price vs Case Shiller. If an new unit of the same type goes for 11% less this year, what does a unit with one year of wear and tear go for? Maybe not much less, but certainly not more.

          • Posted by soccermom

            Got it. So, now when Pacific Union is suggesting “normalization of market conditions… and more housing options for buyers to choose from..” Are they wrong? Or are you just emphasizing how YOU TOTALLY CALLED THIS MOVE.

  7. Posted by catowner

    So, assuming you can negotiate about a 10% discount to craigslist asking prices, then the 10% drop in asking prices that I saw means that the ‘effective’ rental price is about 20% down from asking in the past month. This following your logic that CL prices aren’t real prices.

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