Despite an ongoing surge in the net number of houses and condos listed for sale across San Francisco (i.e., inventory), the number of homes in contract to be sold is now down 40 percent on a year-over-year basis and 40 percent lower than in mid-September of 2020 as well.
In fact, pending home sales activity in San Francisco has effectively dropped to a 5-year seasonal low, with the price per square foot of the homes which are in contract having dropped 6 percent since May and trending down, none of which should catch any plugged-in readers by surprise.
With all of those who came for the tech boom having left or leaving, and all of the long term SF residents they replaced by economic force now long gone, this trend is far from over.
There is plenty of new money – not just techies. There are doctors, lawyers, finance folks, folks with inheritance. Condos and even TICs priced at $1000/ sq ft are yet selling relatively painlessly. They may not get multiple offers (like in 2021) or sell for 20% over asking, and they may take longer to sell, but SF is yet highly desirable and there is a shortage supply that does not seem to be easing. I know a young couple who have moved to the East Bay now wanting to come back to SF if prices drop a little.
And with such strong rents, I suspect most sellers will simply wait it out, as their rents will likely cover a large portion (if not entirely) the mortgage payments till 2024.
In the long term an economy of renting out inherited properties cannot sustain itself. There has to a primary source of productivity in the local economy.
In discussing economics, when someone says “In the long term”, that usually means “when everybody currently alive, is dead”. 😀
Kidding aside, I think deep down, most of the flippers, developers, and other hangers-on in the real estate “game” who have arrived here from elsewhere with dollar signs in their eyes, ready to exploit S.F. workers by running up the price of housing, understand this. It’s just that they are counting on escaping with their “winnings” to Texas or Florida before the “Minsky moment” arrives and the unsustainability reaches its logical conclusion, leaving some sucker holding the bag.
I still have never met a single “flippers, developers, and other hangers-on in the real estate “game” who have arrived here from elsewhere with dollar signs in their eyes” (I assume this is a shortcut on B(ir)’s keyboard) who is planning on moving to Texas or Florida.
I have met many San Francisco natives or Bay Area natives in the real estate business.
To deconstruct your share statement:
What is the percent of natives/born and raised in SF?
For anyone following this site for years, there literally tens of documented examples all the way to explicit fraud and corruption.
You keep repeating this unearned refrain. When pressed you said you talked to some people and that’s what they told you, that they told you all about their experiences and future plans. And we’re meant to understand that these hearsay anecdotes represent something indicative, like a trend. It all beggars belief.
agree if mortgage rates come back down, but the monthly payments have ballooned. Does socketsite have any info on any upcoming swell of ARMs that may come due.
The tech IPO events allow a lot of all cash buyers (or at least very hefty down payment buyers). Putting only 20% down right now in a bloated market is a tough pill to swallow
“There are doctors, lawyers, finance folks…”
A lot of these folks are just here to service the tech folks. For doctors specifically most techies have gold plated health insurance. You can build a practice off of patients like that. MediCal patients aren’t going to sustain the same types and qualities of doctors.
would argue that most doctors and lawyers are priced out of buying family size homes and condos. You cant practically buy a 3bdr home with income <$400K and most doctors make <$300K. less familiar with lawyer salaries, but assume the majority are also <$300K
Correct. Even senior people in the tech ranks and files are priced out of purchasing. I know a principal engineer at AWS posted publicly all about her finances and troubles buying a home in SF. A principal engineer is at the 95th percentile of seniority in tech careers.
An engineer actually in the 95% percentile can easily afford to buy a home in San Francisco.
Not sure about the “average” lawyer, but every fresh-out-of-law-school, brand-new lawyer at a “Biglaw” firm (the brand name firms you would have heard of, with multiple offices in the U.S. and internationally) starts at $235k. The firms are so lockstep on this that “biglaw payscale” used to have a wikipedia entry. Associates make over $300k by third year, and over $500k by 8th year — and then more (in some cases much more) if they make partner. So generally, a higher-paid profession than medicine, though not one with a techy’s chance of suddenly having $20M in liquefiable stock options at age 27 (the types of people who several times outbid my wife and me — both lawyers — when we were buying in 2015).
according to glassdoor, the average salary for an attorney in SF is $158K. anything over $275K is in the top 5% of attorneys in SF. i cant vouch for glassdoor, but i can say you cant buy a home for a family (3bdr+) in SF on $250K/yr
Are you sure? Here’s a 3 bdr for $900,000. If your income is $250.000/year, you can afford this. And that’s just half of the couple. If the spouse makes money too, then it would get even easier.
the median for a 3bdr is $1.6M I believe.
in regards to this house, you try to live in a 1200 sq ft home with 1 bathroom, with 2 adults and 2 kids. It doable, but not sure how attractive that prospect is
The average sale price for a 3-bedroom home in San Francisco has been closer to $1.75 million over the past year.
That’s a bit of a dumpy place with “potential” though. At least from a quick look at the listing. I’ve known some people that chased after listings like that and they all seemed to be a bit like a mirage.
Firstly, many times the list price is set artificially low and the selling price ends up much higher. Secondly, dealing with a house with “potential” in SF is not for the faint of heart. Doing that with one parent working a high level job and raising kids is pretty tough, two working parents forget about it. With 1 bathroom you really can’t even live in the place with kids while you fix it up. It seems these places are more likely to be flipped into high end move in ready homes vs being bought by working professionals with kids.
Long term, maybe this changes if higher rates and the tech exodus reduces the attractiveness of high end flips/builds. Right now though, talking to people trying to build/renovate it seems like still a really tough time to be an amateur renovator. Lots of supply chain/labor problems still.
Important fact about the median: half of the homes are cheaper than the median.
I’m not saying it’s the nicest house ever, nor the biggest house ever. The point is that it is obviously possible for someone making $250K to buy a perfectly acceptable 3br in San Francisco.
yes its possible to buy a 3bdr as i acknowledge, but 1 1200 sw ft 1 bath home for a family of 4 is very tough. and kids arent cheap either. I think its a stretch to pay >$1M on $250K with 2 kids. What % of 3bdr are <$1M. the key point is that most professionals with kids, even high paying ones are priced out. Sure a single person or couple making this much can buy a $1M home.
Yes, many people are priced out. But also there are a lot of professional couples whose combined income is over $250K. They are the people who are buying here.
Though as noted elsewhere on this thread, you get a lot more house outside SF, but that has been true for 150 years, so not really news. Some people prefer smaller houses in the city, some people prefer larger houses in the suburbs.
Many lawyers who are fresh out of law school don’t go to work for a “Biglaw” firm and don’t make those starting salaries and aren’t making them even a few years after they’ve begin their career. Once you understand that, the average quoted by jimbo makes sense.
This is obviously true nationwide. Our firm, for example, only really hires out of the top 10 or so law schools and there are hundreds of law schools. I’m curious what the numbers in SF are though, where — as jimbo says — a less-than-biglaw salary will not afford you a house, so you’d expect a smaller market for non-biglaw jobs. Like, how many people are really coming out of law school and trying to hang their own shingle in San Francisco, knowing that it will likely mean renting with roommates, at best? And then even in biglaw, nearly every associate and 1/3 to 1/2 of the partners, in my experience, have a spouse who also works — presumably that’s the case for an even higher percentage of lower-salaried lawyers (and doctors).
Anyway, I agree that you can’t reasonably afford an average 3BR home in SF ($1.75M per the ed. note) if your household income is under $300k. Personally, I wouldn’t feel comfortable doing it if my HHI were under $500-600k, but I know people stretch a lot more than I’d be comfortable doing.
“but I know people stretch a lot more than I’d be comfortable doing.”
In retrospect stretching was the right thing to do. The “property ladder” that the real estate industry likes to tout was really more like a “property escalator”. People who really stretched to get into the market saw a rising market that raised up their equity without any effort on their part. Falling rates allowed for continuous re-financing to lower monthly costs.
The million dollar question is what happens now?
none of the SF law schools are near the top 10 . im sure some of those folks from USF,Golden Gate or Hastings (good but not near top 10) would like to stay
I’m sure those USF and Golden Gate students may well prefer to stay in SF, but they should have known that was unrealistic going in (though I’m sure the scam-artists in those schools’ marketing departments sold a different story). I always counsel relatives not to go to law school if they can’t get in to at least a top-20 law school. You’re replacing three years of salary with three years of very high costs (and the bad law schools don’t really cost less than the good ones — so add large student debt to the headwinds to home-ownership too), and you’re just not going to get hired into a high-paying job no matter how well you do.
At Hastings, if you graduate in the top 10%, you can get a biglaw job, but it’s not like Harvard where you can be bottom 1/3 and probably be OK.
Most lawyers fresh out of school don’t have a family of 4 already either (I would think)
Yes, speaking as a lawyer of >20 years’ experience, I’ve just purchased a SFH across one of the bridges, because for the same price in S.F. (even now) all I could get were cramped condos needing work and/or with questionable permit histories and/or sketchy neighborhoods.
And it’s not just me; so many of my profession peers are perplexed at who can afford S.F. real estate prices, because even we can’t…
I used to repair copy machines in San Francisco. Some building were filled with mostly empty condos. They were owned by investors. Some years ago Olympic seats had mostly been purchased by corporations. …I’m not sure that some people who could afford homes were real people at all. …Of course San Francisco does have a lot of actually real and wealthy people.
One problem I think is the data we have today is a lot more manipulated and biased than data used to be. It’s hard to know what’s true. People try to make data fit exactly what they want instead of trying to get a clear picture of how things are.
I don’t deny that there is a Fed-generated market shift going on. But at the same moment in time, all aspects of construction costs have only gotten more expensive. If one only does the math, consider. Where is there a $1M vacant lot in SF? Let’s say Dogpatch. So somebody pays 1M for a piece of land there. Can any builder build for under $500/ft these days? And the city now is going to make everyone build at least two units for anything over 3000 sq ft, and likely any parcel zoned for potential multiple units, for that matter. So then factor in the costs of redundant (to a builder) kitchens and baths. It’s not going to wind up being $500/ft anymore. But simply call it 500 for the sake of math. Take the 1M, factor in 2 years of holding costs, minimum, at likely exorbitant private money lending rates as few lenders are interested in land loans without large down payments. So call it 10 percent on 1M for 2 years. That’s 200 grand. Then 3500 sq ft to build a 2 unit, so 1.75M. Now you’re already at 2.95M to break even, without even factoring closing costs like realtors or transfer taxes . Tack on another 200K. You’ll need to get around 1.75M per unit to even net a pedestrian 300K on your 2 year investment on whatever you leveraged.
Does anybody want to buy a 1.75M unit in Dogpatch right now? I don’t know. This is just a hypothetical. But the notion that real estate values can drop much more is to me a fallacy. In order to do so, multiple industries will need to get crippled. All up and down the line, raw materials to transportation to labor. I don’t think that’s the Fed’s goal. All they want is a calming. A semblance of stability for a quarter or so.
I’m currently building two units at a cost of $270/sf. Includes raised seam metal roof and mini-split A/C in all rooms. Nothing fancy but not skimping either. It’s possible to build for under $500 psf … if you’re a builder.
I am waiting on the sidelines, pockets bulging with cash, gleefully rubbing my hands together as this unfolds. All the real estate “geniuses” of 2016-2022 are going to eat it, which will finally prove me right!
I think it’s safe to say that most of the genuine real estate “geniuses” of 2016-2022 refinanced their properties at all time low fixed mortgage rates in the latter years of that time period. They’ll be be sitting pretty while everyone who wasn’t an owner “eats it” over the next few years because their cash is getting eaten by an 8.3 percent inflation rate.
I disagree. The people who bought and refinanced at all time low fixed mortgage rates are going to see the value of their homes drop, possibly for several years. The people who purchase at these lower prices will very likely have the option to refinance to a lower rate in the future, but should benefit from lower property taxes based on the “cheaper” home that they purchased.
Sure, but the people who owned and refinanced at all time low fixed mortgage rates will only realize that value degradation if they sell during the market downturn over the next few years.
If they are genuine real estate “geniuses” they’ll make it a point to hold their properties, avoid looking at online “Zestimates” and also avoid refinancing or otherwise getting exposed to much higher mortgage interest rates. They’ll patiently wait it out and delay any selling until the market recovers following The Fed’s success in bringing inflation under control, because they won’t have to sweat ARM resets.
Unless they lose their jobs or need liquidity…. Then all bets off.
“Unless they lose their jobs”
Or if the jobs re-locate.
Tech seems to be doing actual layoffs now, but I think job re-locations to lower cost areas is going to be a big factor too. If you can work from home, you can work from austin (or wherever). Not all jobs of course. But there’s going to be a middle ground between a position the company doesn’t need at all (i.e. layoff) and one that needs to be highly paid in the SV HQ.
Now I am confused, the “real estate “geniuses”” are just people who bought houses but don’t work in real estate. They are different than the “hangers on in the game” who are moving to Texas.
Yes, I think it is fairly safe to assume, and not confusing at all, that most homeowners are not people who are mom-and-pop penny ante landlords or otherwise in the real estate “game”. And you don’t have to be in that group of people to be a “real estate genius” in the current situation. The sets of people are overlapping, but they are not identical.
Look, 85% of Homeowners with Mortgages Have a Rate Far Below Today’s Level:
All one needs to do, if one is a current owner, is sit tight and avoid selling during the upcoming downturn. Again, this isn’t going to be a repeat of 2007, because a whole lot fewer people are going to be faced with ARM resets.
My comment was there is not a need for the use of the quotes and the negative connotation nor the “eat it” when talking about regular working people buying a house to live in. Where is the quote from where these home buyers are calling themselves geniuses?
The scare quotes, and the associated negative connotation, were introduced in the original comment by Jimmy, presumably to separate the flippers, investors and speculators from the regular working people buying a house to live in.
By saying there is no need for the quotes, you are trying to conflate these groups. I am saying they are distinct. The former group, if they bet on a short-term turnaround by taking out ARMs, are going to “eat it” as their mortgages reset at higher rates for the forseeable future. That group is probably small, however.
I’m not the one trying to conflate these groups, but I do think that is being done in this thread.
I agree with you here, these are totally different groups.
But what is even the point in differentiating flippers/investors from homeowners? Locals from out of towners? Rising prices increased the equity for all of the above. Falling rates allowed refi’s to lower payments for all of the above.
Higher rates hit all of the above groups in the other direction. The real differentiator is in how much people were willing to stretch to get in the market (both investors and owner occupiers). Not everyone was willing to stretch to the max, but in a supply constrained market those who stretched the most were the most likely to win a bidding war.
I think the changing market conditions hit both investors and owner occupiers the same. The main difference I see is that investors may be less emotional and thus react more quickly. I think that’s why the investor heavy condo market often acts as a leading indicator of the market as a whole.
You think people can just wait it out, but what exactly are they waiting for? Rates are not unusually high now, they were previously unusually low. Many companies are moving out (or moving jobs out) of the area and not coming back. WFH is going to permanently un-tether some (but not all) jobs from any location at all, which will mean that many will no longer choose high cost areas to live in. Plus even holding out for a nominal gain may not leave you better off in real terms if inflation runs hot for too long
I was separating them because I feel like there is one level of schadenfreude that I see as fair game (that being the flipper), while I do not think it is the same to lump a home owner who had a job and a family and probably felt they over paid but needed a place etc. etc. and if their job relocated or they lost it then I don’t hope they “eat it” because I don’t think they saw themselves as “geniuses”
But if the only way not to “eat it” is to sell to someone else at a even higher price, how does that work out for the new buyers? Someone has to be without a chair when the music stops.
What really concerns me is the systemic risk. In CA most loans are non-recourse, so banks/MBS investors would probable end up with the majority of the “eating”. And what’s going on with the interest rate risk of MBS’s? If you have a portfolio of mortgage bonds at 2-3% and rates are now 6-7% that can’t be good. The Fed is talking QT, but hasn’t really started selling off their MBS portfolio yet.
In the US, I think the majority of outstanding loans are fixed rate. (Ohlone implied that SF is different, but I don’t know either way about that). So I think here the impact to fixed rate MBS holders/issuers is the major things. Other countries have mostly adjustable and their payment shocks are going to be the issue. It looks like the Fed and the strong dollar is going to force the hands of other countries central banks to raise rates whether they like it or not.
I don’t think it’s “SF is different.” I’d think most high cost areas will be seeing borrowers going to 5/1 and 7/1 ARMs right now. But yes, the information I get is from local mortgage brokers/lenders. Take it for what it is, merely my anecdote. Does it not stand to reason though? The caveat being high net worth borrowers who can still get fairly good 30 year rates.
This will be a very short slow down and will rebound very quickly
i don’t think “affordability” will improve in the short term… especially with all the tech layoffs
For the record I have 3 mortgage loans and one SBA loan at the following interest rates:
Loan 1: 2.25% 15-year fixed
Loan 2: 3.25% 15-year fixed
Loan 3: 3.00% 15-year fixed
Loan 4: 3.75% 30-year fixed SBA
Inflation is my new best friend!! I will repay that money decades from now with highly inflated dollars.
Meanwhile I raised rents across the board by 10% and nobody budged. All units fully rented. Excellent positive cash flow every month.
I am on the hunt for failed/stopped single family construction projects in prime West of El Camino SV neighborhoods. To be bought at or below lot value all cash, and finished by yours truly – for rental and later, re-sale or kept in the portfolio. If it’s a particularly nice house I might even move in myself! I will close a deal within the next 18 months. Watch.