At a time of the year when sales typically start ticking up, fewer than twenty contracts for new condominiums in San Francisco were signed last month, which is 67 percent fewer than the month before, 42 percent lower versus the same time last year, and the fewest in any month since at least 2013.
At the same time, the inventory of new construction condos available to purchase is holding around the 1,000 mark, which is 50 percent higher on a year-over-year basis according to data from The Mark Company.
And having slipped another 2.2 percent in January, the Mark Company’s pricing index for new construction condos in San Francisco is running 3.4 percent lower on a year-over-year basis and has dropped 14.0 percent from its August 2015 peak.
Keep in mind that there are 6,200 units of housing under construction across the city, which does include both for sale and rental projects, and the overall inventory of homes listed for sale in San Francisco has ticked up to a five-year high.
Yikes!
OTOH, condo and TIC sales on the MLS were up a little in january from the prior year. 157 compared to 149. And SFR sales were up a lot. 179 compared to 104.
This is off topic but can anyone tell me what is the new project going up to the north of Solaire (pictured in the foreground in the image above)?
That’s Transbay Block 7 (a.k.a. 255 Fremont).
Resale market is also off this year
with the new affordable housing next to solaire complete now, i have to say I can notice the new residents in the area. This to me is also a pleasant surprise to see the tech SOMA/financial distirct worker bees coming outta soliare offset by students, and other poeple obviously dont fit the ” tech SOMA/financial distirct ” mold….
And this is a GOOD thing. This is diversity and we need more of this to break the boring monotony of us office workers.
Im not interested in the debate on if affordable housing is right or wrong, but I am very interested in seeing and being around not just white collar (& generally white people) people, but a wide range of character / background, etc. Diversity is good.
Edit to above, point being I cant wait for this project as seen above to come on board & further add a new people mix to this dynamic area!
agreed! Wish there were more mid-priced (market rate but non-luxury) units going in around the transbay/central soma areas to house the missing middle.
Does anyone have sense as to whether the price spread between historic remodeled units and new construction is narrowing (given increase supply of new condos)? Or are prices falling all around?
It remains to be seen how much further the price index for new construction condos will fall. That is separate from the question of how much of a price decline would have a significant impact on upcoming projects. Significant in the sense that planned start construction dates are pushed back or approved entitled projects are abandoned. So far there have been a number of entitlements put up for sale, but no large projects have been outright abandoned.
Could prices eventually bottom out at 20% below their peak? Possibly – given the numbers above – but 20% is probably not as significant a drop as it seems at first glance given the August 2015 peak was likely an unrealistic high point in prices caused by irrational exuberance.
One likely outcome of an ongoing modest drop in prices is a delay in a number of not yet shovel ready projects and a drop in the number of new units coming onto the market. Dropping back below 3000/year for the near to medium term. Leaving aside 2017 and 2018 – both should see more than 3000 units given projects under construction.
At a more macro level, Forbes recently ranked Seattle as the number 4 best housing market in the US. One big factor being the very large population and job growth Seattle is experiencing. Builders can’t keep pace with the growth there and prices are going through the roof (relatively – Seattle is still affordable compared to SF). Seattle has been building 5000 new units/year for 5/6 years now and is expected to do so for the next decade, but that may not be enough..
Most of the other cities on the Forbes top 20 list shared another thing in common with Seattle – besides rapid population and job growth – and that is affordability. More than anything else the affordability factor seems to be catching up to SF.
Maybe it has something to do with the construction quality? We have toured a couple of new condo buildings that all boast about “gorgeous hardwood floors” yet none of them provided any kind of sound insulation between the floors. Simply walking barefoot upstairs makes the lower unit feel like they’re inside of a giant drum. And asking $1,100/sf for this insanity? No thank you.
Seems pretty odd. Any quality high-rise is going to have something like 6″ thick concrete floors. Plus sound-blocking material under the floor covering. You should be hearing proportionally much more noise through double (or triple) pane windows than from units above or below.
SF has poor construction quality. That’s what happens in an extreme seller’s market. As the market becomes more competitive these builders will have to up their game. Many new condos in SF are indistinguishable in quality from rental units. I was particularly shocked at the poor quality of Hayes Valley condos. Again extreme seller’s market there. Or was.
The transparency and honesty of their sales tactics also suck. At some new construction condo buildings, they don’t distribute price sheets. Instead they have their chicken scratched piece of paper and they’ll quote you a price verbally that you have to write down. And many take down and then relist a property to reset the history and days-on-market counter. Some won’t even tell you what another unit was sold for.
Extreme information imbalance to get maximum profits. SF market has a long time to mature into a high transparency, fair market like NYC.
I think this year will be much like a repeat of 2007, the last dance before they shut off the lights. Ten-X just ranked SF in the bottom five US markets for investing in apartments right now. Also the Bloomberg Startup Barometer is down about 20% this past year. By some measures the stock market has only been more inflated in 1929 and 2001, and forward guidance this quarter was super weak. If Trump doesn’t deliver on his tax cuts and fiscal stimulus soon, the new Apple gadget might not be able to save us.
2008 great recession was a big deal. It will be historic if something of that magnitude occurs so closely together. But then again, Trump.
The bigger the bubble, the bigger the pop. This one is actually bigger, because it’s not just housing, everything under the sun is inflated. And post war, the average time between recessions is just five years, the longest is ten. Also not Trump, this is squarely on the Fed. I’m not sure why it’s so hard for everyone to understand that prices for everything are up because the dollar has been too easy to come by for the speculator class.
Like wondering why it’s so hard for people to understand that the increases in valuation of Apple, Google, and Facebook are because of their unprecedented revenue. They are not in any way a bubble.
Sabbie also conveniently ignores the IPO pipeline for big SF based companies… Pinterest, Stripe, Lyft, Uber, Airnbn, Dropbox, Okta, Credit Karma, App dynamics, Cloudfare.. not even a single one of these companies are based in SV.. so many young millionaires are about to be created in SF..
so many young millionaires are about to be created in SF… Yep, you just proved my point about too much easy money sloshing around. When the spigot is turned off, then what happens? The pipeline is already running pretty dry, these companies may be hoping for an IPO, but the reality is that 2016 was the slowest year for IPOs since 2008. Plus, IPO for startups is typically an exit strategy, not an entry strategy- start up, cash in, sell out, bro down! Just look at Twitter and GoPro. Snapchat IPO will be a seminal event for the market.
Sabbie also ignores that all the companies you mention plus many others small and large (Apple, Google, Facebook) already employ tens of thousands of people in SF at high salaries.
Yes, Sabbie, some of these companies will fail. But others will not. And if Twitter is a failure (11B in market value created in ten years), what does success look like?
We are conflating two things.
If another global recession or crisis hits, as Sabbie alludes to, SF will go down with it of course. Student loan debt, general overvaluations, China issues, or Trump issues are all possible.
However I agree with the others that there is no reason for pessimism related to a tech bubble. P/E ratios of tech look about in line with other industries. There are billions of people online now, and ecommerce is very real. There is a much larger emphasis on revenue now among smaller and midstage companies. And the big ones are *crushing* it right now.
Which brings us back to the topic at hand, which is a sharp decline in new condo sales and pricing in San Francisco over the past year, despite the current strength of tech.
P/E for tech is in line with other industries, ha. Look at the CAPE ratio today. It’s only been higher in 1929 and 2001. Do those years ring a bell at all? Besides, P/E for startups doesn’t matter, funding does. Who is going to fund these lame companies if rates go up and they can get some risk free return instead? Nobody is saying that Google and Apple will crash, but unless they are hiring more and more people, it doesn’t really increase demand for housing.
Well first, Apple and Google ARE hiring and will keep hiring.
Second, are you dismissing Airbnb, for example, as a lame company? What about Uber/Lyft? (As Uber loses market share, Lyft gains it) Have you used their services? Have you used them on every country? Because Airbnb works in about every country on the globe.
Which once again brings us back to the topic at hand, which is a sharp decline in new condo sales and pricing in San Francisco over the past year, despite the current strength of tech.
And in terms of hiring, Employment Drops in San Francisco and the East Bay.
As for pricing declining, considering that the unemployment rate dropped again, we should look to the supply side of the equation. We have had (slightly) more housing units open in the last few years than in previous decades.
While the unemployment rate recently dropped in San Francisco, it was driven by a decrease in the labor force and employment has actually dropped as well, as plugged-in people should know and understand.
And the 25 percent drop in actual demand despite a 45 percent increase in available inventory?
If we’re being snippy, Socketsite, websites that purport to keep people plugged in should be aware of the concept of statistical significance.
Call it even?
You’re welcome to argue the statistical significance of shifts in the employment data and its impact on theoretical demand.
Or one could look at the trend in terms of actual sales and pricing, both of which have been trending down, and rather significantly, over the past year despite the drop in San Francisco’s unemployment rate.
Which once again brings us back to the topic at hand…
Back to the topic at hand, I would say that continued startup growth is crucial to maintaining the demand for these new construction showbox condos. While foreign buyers continue to bid up the low tier SFRs, and the more established tech lotto winners still have no problem dropping a million dollars on a railroad TIC, the younger workers that supposedly make up the market for these new condos can save a ton of money plus have a lot better cultural opportunities by moving two BART stations away to Oakland, if not by sidestepping the Bay Area altogether.
@Sabbie – “sidestepping the Bay Area altogether” is an increasingly doable option. Given the nature of tech jobs and the, some would argue, better quality of life in other metro areas. Forbes list of top 20 cities for real estate in terms of buying a personal residence or investing generally had higher job and population growth than SF/the BA. The shift of tech jobs from the BA to other regions is and has been underway for a while now. Just to be clear, the Silicon Valley will remain the center of tech but the job concentration there will not be as great as it has in the past. These things happen – someone in the bio-tech industry posted recently at SS that Boston has surpassed SSF as the center for bio-tech.
Side stepping New York, London and HK are viable options for people living in those places, but they choose to stay.. There is something people like about being in the center of things.
When it comes to Seattle there are tons of reasons why people wouldn’t want to move there, its boring, startup ecosystem is almost non-existent (even though there are a ton of engineers, which is a huge red flag about type of people city attracts), zero VCs, not enough walkable neighborhoods and it rains all the time!
If you want to live in a condo in SLU where amazon is located 1-bd rents are already around $2.5k and SOMA apartments go for $3,5k. If you are making over $150k and you believe you are among the best and the brightest in SF, this is a price difference you can easily pay for.. If you are more price sensitive Oakland is always an option.
And you don’t think that the decline in new condo sales has something to do with the increased availability of rental units and a general apprehension of buying high (due to a likelihood of price drops across the board in SF)?
Why would the “best and brightest” want to live in a SOMA shoebox? That’s not even a real neighborhood, there’s barely any amenities, no trees, gridlock traffic, and it’s crawling with crackheads. San Francisco is still a picturesque city, but you’d be hard pressed to argue that it’s fun and cool anymore. It’s snobby and boring and chock full of overpriced mediocre small plates and bizarre $15 cocktails. But even those businesses are closing down left and right, 60+ Bay Area restaurants have closed in less than six months.
SOMA was just an example. 1bd costs similar in hayes, haight, divis, mission, polk or cow hollow. Best and brightest live in shoeboxes in Sf for the similar reasons why people choose to live in shoe boxes in Williamsburg Shoreditch or Brera. Its just funny that you are claiming SF food scene is struggling, I would say its even better than New York.
California has been, and likely always will be, the tech center for a simple reason: non-compete agreements are essentially never enforceable here. Employees elsewhere can’t just quit and start their own competing venture like they can, and so often do, here. That keeps the scene very vibrant. So although people might be able to do most of their work in cheaper states with a hi-speed internet connection, they are never going to be the big disrupter because they are bound by non-competes that every company uses. This doesn’t mean the BA has to be the place in California where the tech focus will remain. But this is where Stanford is, so it’s a pretty good bet that the BA will remain the center of tech for the foreseeable future.
There’s a really good article in East Bay Times about all the restaurant closings. I agree the food scene here is great if money is no object, also cheap ethnic food in the outer hoods, but the stuff in between is lacking compared to Austin, Denver, Portland, etc. They just can’t make the numbers work.
Sabbie, do you work in tech?
Many tech people want to live in SOMA because nowhere else on earth are so many hot tech companies concentrated in such a small area. This is where the action is.
You may not like it but plenty of people enjoy easy access to the Embarcadero and freeways and the ballpark and the bars and restaurants, etc.
No, I work in real estate. But speaking of tech, today’s SF Business Times says: “Even in the thriving Bay Area, tech jobs are on the chopping block: Industry job reductions increased 21 percent in 2016.” Like I keep saying, those behemoth companies you keep bringing up can’t sustain the demand alone. It’s like saying the dot com bust never happened because look at Intel and Google. Especially if we keep building, and especially in the brand new SOMA shoebox condo segment of the market. I went to a dinner party near the ballpark a couple weekends ago, total ghost town on a Saturday night.
I assume you honestly can’t see a difference between today’s internet based technology companies and 2000’s internet based technology companies.
Some people do.
The main difference is that companies were able to go public back then. Riddle me this: with the stock market red hot today at record all time highs, why is the tech IPO market so icy cold? If not now, when? Maybe it’s because retail investors and fund managers demand a much higher win rate than VCs who are pretty much gambling with Fed funny money.
Wait, so are you saying that tech companies in 2000 (pets.com, webvan) were STRONGER than tech companies today (Airbnb, Ubar, Dropbox) because there were more IPOs then?
That is truly a groundbreaking theory.
Seriously, though, there are many differences in the IPO market from 18 years ago. One of the most important, in my opinion, was the acquisition of the smaller tech focused ibanks. But that’s neither here nor there. If you really don’t understand the strength of Airbnb and Uber (and Dropbox, Stripe, and all the others listed higher in the thread), you really ought to look them up sometime.
Out of curiosity, have you ever used Airbnb abroad?
If you think SOMA is a ghost town try going to SLU or Belltown in Seattle, these are neighborhoods that are supposed to provide an alternative to SF..
“I’m not sure why it’s so hard for everyone to understand that prices for everything are up because the dollar has been too easy to come by for the speculator class.” – Sabbie
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” – Upton Sinclair
Two large unknowns are the infrastructure stimulus and the potential repatriation of corporate money held overseas to the US. If both of those were to happen there would be a flood on money into the country.
How that would impact SF specifically is not clear. The infrastructure bill is likely to see SF and the BA shorted. For a number of reason but one big reason being the regions inability to get tis act together on things like transportation. As in work together on the best projects for the region instead of each BA city working for its own interests and the rest of the region be damned.
Already metro DC is looking to use the money, if it comes about, to extend their subway to the Maryland exurbs. Texas cities are also planning regionally for the potential availability of funds.
The repatriation of corporate funds may not impact the BA as much as other areas because of strings that potentially could be attached – as in using the money to re-invigorate cities like Detroit and Baltimore with corporate campuses and such. Given the wealthy nature of this region it seems likely the BA won’t get a proportionate share of the investment from repatriated money.
Bottom line is that there are too many unknowns right now to make solid predictions one way or the other.
The Bay Area’s act is completely together on Caltrain electrification and it’s looking like we’re still going to get screwed.
My point being that this administration knows it’s not going to get any support here anyway, so we should expect to get nothing.
Caltrain electrification is an absolute no brainer that should have happened 40 years ago.
@Sabbie – Agree about SOMA, not sure about the restaurant business situation though. SOMA has nothing on The Pearl or Pikes Place or many other metro areas’ special districts. Speaking of food, I was in LA recently and, ouch, the food scene there is at least as good but arguably better than that in SF.
@Dave SOMA is not a special district, and its not fair to compare SOMA to pearl or pikes place, Belltown or SLU would be better comparisons in Seattle. Portland doesn’t have enough business activity going on to create a comparable neighborhood. Pearl is great, I would like to see dogpatch- pier 70 area to develop like Pearl in portland.
“But then again, Trump.”
“In San Francisco, an Indian software engineer on a work permit canceled plans to bid on a $900,000 home. […]
President Donald Trump’s immigration policies threaten to crack a foundation of the American economy: the residential real estate market. Legal and otherwise, immigrants, long a pillar of growth in homebuying, are no longer feeling the warm welcome and optimism necessary for their biggest purchase.”
SF has not been a good place for investing in apartments or SFH(s) for a while now. Properties generally don’t cash-flow. Many investors were willing to accept that situation with the promise of huge appreciation to compensate for the low to no ROI.
The appreciation factor is gone now with real estate appreciation in SF and the Bay Area dropping significantly and with areas like Seattle, Denver and others significantly out-appreciating SF now. Its likely they will do so for the medium term future.
Why buy it when you can rent it for half the monthly cost?
Rent-to-own ratio just doesn’t makes sense right now.
SF Realist: I would recommend the economics website Naked Capitalism. While coming from a leftist political position you may object to, they recently have featured a lengthy analysis of Uber which concluded the company is a big scam which can succeed only if the billions and billions of venture capital can create an absolute monopoly in most hire car markets. Their numbers are NOT improving as one would expect in a company approaching an IPO…if anything, they are getting WORSE (see the hasty…and costly…exist from China).
I am not saying all tech companies share the same flaws, but a lot of this stuff seems pretty ephemeral to run an entire economy on.
Personally I loathe Uber. Haven’t used it in years.
Uber may or may not go away. But until it does, it will keep spending the stupendous sums it has raised and many of its employees will make excellent money in SF. Airbnb, on the other hand, is incredibly useful when you travel.
Pretty easy to figure out. Supply and demand are not in balance for “big box condos”. Meaning 10 plus units, mostly area 9 with some in area 6 and 10. It is the only thing being built …either for sale or rental.
There were years of under building 2008-2013 (ish), then everything started being finalized and coming into available inventory. I believe we have relatively the same demand for new(er) big building condos as we did in years past. Perhaps slightly less from foreign investors, perhaps slightly more from lots of high wage employment in SF, empty nest buyers, etc. Higher inventory, and approx. flat demand will ultimately cause prices to fall.
As a Realtor I can tell you there are a number of buyers who simply do not want to live in or pay the price to be in a big box urban condo. They will however gladly buy a flat in a condo ownership structure in a residential neighborhood.
Most flats in 2-6 unit buildings are still receiving multiple offers and selling for high dollar. I think a function of property style, lower HOA, fewer neighbors, shared yard, LOCATION, being almost like a single family home.
I believe we have relatively the same demand for new(er) big building condos as we did in years past.
Keep in mind that new construction sales were down 25 percent in San Francisco last year, and that’s despite an increase in inventory from which to choose.
Not sure if the demand is about the same or not compared to previous years. One thing that is the same is the lack of affordability – it has worsened in the past few years. That is one reason Seattle, which is not yet as big as SF population-wise, can build 5000 units/year while SF builds less than 3000 units. But for 2017 and 2018.
New units are geared not to the average SF worker in terms of affordability but to tech millionaires and such. The wealthy part-time resident and foreign investors being a factor also.
Seattle and other cities are building a lot of housing affordable to the average worker and hence are able to absorb more new units. Sadly, given things as they are, SF will likely never be affordable to the typical worker and in its own way that has and will hamper the quality of live, diversity and excitement of the city.
You are right about the desire for smaller buildings (in terms of units) that have somewhat of a SFH feel with a bit of green space. Given the cost of land here, new construction geared to small sized buildings will usually have a higher cost per unit than the hi-rise boxes littering SOMA.
Building more uber expensive big box condo towers is not a solution IMO.
The booming Biotech sector is one important future driver of the SF housing market that has not been mentioned enough in this conversation. Chinese investors are contributing $1bn to build out facilities in South San Francisco (as Socketsite reported repeatedly). This will be a huge, long-term boost to the City’s high-end job market that will develop independently from the Ubers and Airbnbs of the current tech scene. Biotech clusters are also harder to outsource to cheaper regions, as you need near-by top universities, an experienced talent pool and top-notch laboratory facilities. Boston might be ‘in the lead’ for Pharma related Biotech, but there is so much more to it (Medical Devices, Bio-engineering, Wearables) that are thriving in the Bay Area.
you can make your own connection to what it all means for long-term residential real estate.
biotech growth has slowed down a lot since 2015, but definitely hoping it picks back up
How has biotech slowed down since 2015? Any layoffs I have not been aware of? All I’m seeing is long term investment projects being filed.
the biotech IPO market was dazzling in 2014 and 2015, and has come to a standstill. net inflows of capital are way down. stocks did poorly in 2016. agree that we havent seen layoffs and i dindt intimate that. I only said the market has slowed down, not gone backwards.
Here is a fair example of the market. 420 Mission Bay Bd. # 1203 just sold for $1,835,000. Had sold for $1,750,000 in April 2015, then new. Just under 5% higher. Not a great outcome at all for the seller with a loss after transaction costs etc. But certainly no bargain for the new buyer who paid $85,000 more and $1100 a square foot. Nothing even approaching a market decline, just the opposite, but still a bad result for the 2015 buyer.
That’s certainly an example. Here are a couple more: One Year Later and Listed for 24 Percent Less at The Infinity; Two Years Later and $518K Less at the Infinity.
We should also note that the new condo market appears to have peaked around August 2015, with pricing that had appreciated between 4 and 5 percent since that April.
do you see the same for older condo market (e.g. those not built in last 5 years), the peak in Aug 2015?
Also is there anyway to parse out how 1bdr vs. 2bdr vs 3 or more are doing?
I would think the 3bdr condo market must be outperforming the others do to scarcity, but just a hunch