New Condo Sales Tick up in SF on the Heels of a Price DropApril 25, 2018
Having taken a hit in February, the Mark Company’s pricing index for new condos in San Francisco inched up 0.5 percent in March but is still running 8.8 percent lower on a year-over-year basis and 16.1 percent below its peak in the third quarter of 2015.
At the same time, with the sales office for the 33-unit development now known as 288 Pacific (a.k.a. 240 Pacific Avenue) having opened its doors, the number of purchase contracts signed for new construction condos in the city totaled 126 in March versus 91 at the same time last year.
And as such, the inventory of new construction condos currently available to purchase in the city has dropped to 558, which is 43 percent lower versus the same time last year and the lowest inventory level in the absolute since the third quarter of 2014.
Comments from Plugged-In Readers
Well that’s good news: blow them out for less now. reduce the inventory. Less new condos coming online in the next 2-3 years. Condo prices will be going up soon enough again 🙂
If they thought prices would be going up, they wouldn’t be reducing prices now, they’d just rent them out and wait, like Millennium Towers did originally.
Between non deductible property taxes, and the group behind the ballot initiative repealing Rent Control on condos claiming they now have more than enough signatures to put it on the ballot, which would cause many investors to sell, and far fewer to buy, it’s pretty uncertain where prices are heading.
I think keeping and renting the condos only to try and sell them later is a bigger risk than discounting them. The expenses of leasing and then needing to rehab them for sale is not worth a short time horizon.
I think the limited tax write offs are a smaller deal then the costa Hawkins ballot initiative. That would definitely be bad if passed, but I don’t hink investors will dump them wholesale.
Surprised the property tax issue hasn’t caused more of a stir in the market/news. SF seems to have an insatiable appetite for housing / condos. I guess that is what happens when you increase supply in drips and drops and not buckets.
This juxtaposed news that Build, Inc. has put its entitlement for One Oak on the market because construction costs are “too high.”
As reported above and foreshadowed over two years ago, while the the pricing index for new condos in San Francisco inched up 0.5 percent in March, it is still “running 8.8 percent lower on a year-over-year basis and 16.1 percent below its peak in the third quarter of 2015.”
Another way of articulating “construction costs are too high”: “sale prices are too low” (with proforma expectations of appreciation, circa late 2014 when Build Inc. acquired the project, having failed to materialize).
One Oak is not a surprise. It was delayed so long that it missed the prime start of construction window – does it signal choppy waters for the other proposed Hub residential towers? Add in the high-rises planned for 1270 Mission and 524 Howard and there are 850 units not moving forward. There are about 960 units in entitled projects that are on the market so this would almost double that number. The flattening prices will impact – should they remain so for a number of years – other projects. A good chunks of the 65K units in the pipeline may never come to fruition.
Nah they will come to fruition, just not as originally thought out. There’s always twists and turns.
I’m thinking some projects get put on ice during the upcoming ( or current?) cool offf…. only to be repitched with more stories/height cause the next up cycle will be about more vertical growth as the younger and growing (proportionately) voting population counties to lean more density focused.
So look for these projects to pause but come back taller and better with more units.
I was in MB today, atfer 2-3 years since last time, and while still a bit sterile and empty it’s booming no doubt with the warriors stadium coming along nicely and lotsa other construction under way. Once the giants dev gets going it’ll be pretty dense and built out. Still suburban office park feeling for sure, but moderately dense. Developed though. Done.
Point in that is that huge developable land places in or near the core are dwindling. Remaining random smaller lots and tear downs will have to go taller since, contrary to DAves dire predictions the SF core is going to boom like crazy again and hold the west coast top spot as the main driver of innovation and be the west coast main city. Then LA then Seattle. SF in the wests NYC and it’ll grow in prominence not shrink. Pricing will stay ridiculous.
My hope/ estimate at least.
If it does not pencil it does not pencil. Some projects will be delayed, some scaled back and some cancelled. One Oak no longer pencils so the entitlement is being put on the market. Presumably the developer will take a loss to sell it given the situation. Whomever buys it will likely not build within the window and come back with a scaled back project down the road. With job and population growth slowing/anemic there likely is not going to be a need to build larger in the mid-term timeframe.
SF is not the main driver of innovation. That would be the SV with SF having benefited from spillover the SV boom. No way is SF/the Bay Area the West Coast’s main city. Come on – LA is the center of business, transportation, arts, entertainment and population for the West Coast. The main city and it will continue to be so. The LA region is growing at a faster rate than the BA – though not as fast as many metros like Seattle, Phoenix Dallas and others.
SF/the Bay Area’s relative prominence will shrink in coming decades as it becomes less of a top tier jobs and population center. Seattle, as a region, will over the coming decades challenge the Bay Area as the number two metro of the West Coast – after LA.
3rd quarter of 2014 was also the last quarter before the 655 condos of Lumina hit the market. I think there are still a few on the market, but what that tells you is that a developer of a large complex like that needs to budget cost of sales office for ~3.5 years. We don’t know the profit margins, but since he needs about 3 years or so to break even on the project, his financial risk might not end for years even if opening the building in the prime housing market.
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