After a year of record-setting prices, growing concern over affordability, continued city population growth, and fragile but continuing economic expansion, the Marina Times checked in with five leading real estate agents to get their on-the-ground expert opinions on where San Francisco residential real estate is headed in the new year.
What do you expect to happen to San Francisco residential real estate in terms of housing prices in 2014?
AMANDA JONES, Sotheby’s International Realty, www.jonesgroupsf.com: In 2014 we’ll see some increases, but it will be neighborhood by neighborhood and perhaps some flattening of the housing prices in the outer-lying areas. I don’t see prices going down, even with some interest rate increases.
KEVIN KROPP, Vanguard San Francisco, www.vanguardsf.com: For 2014 we expect the market to continue to trend up and are expecting 5 percent to 6 percent increase in property values over the year. As always, there will be push of inventory in the first two quarters of the year, with sales flattening over the summer months. The fall — September through November — is expected to show a push, as is typical for the end of the year. By year-end I fully expect new records to be set citywide in price per square foot and sales price.
STEPHANIE SAUNDERS AHLBERG, Hill & Co., www.realtyinsanfrancisco.com: All indications are that the San Francisco Real Estate market will remain strong in 2014. The tech sector is doing very well, and with the new IPOs the demand remains strong and cash is readily available. The biggest problem is the lack of inventory in all parts of the city. This goes back to the old economics rule of supply and demand. Demand is high, supply is low, so prices will continue to rise.
PAUL BARBAGELATA, Barbagelata Real Estate, www.realestatesf.com: More of the same from the late 2013 market. The spring will have the most inventory available for buyers and should be healthy and strong. There really seems to be a 10-to-1 ratio of buyers to good quality property. The San Francisco market will continue to have fewer sellers “selling,” therefore the demand will create bidding wars again.
CAROLE ISAACS, McGuire Real Estate, www.caroleisaacs.com: There is a pent-up demand for housing. Prices will continue to rise, but not at the rate of 2013. As new construction sells, the developers have raised their prices as much as 10 percent on remaining condos in their buildings. As long as there is a demand, the prices will continue to go up.
Affordability has become a hot political topic in the City. Do you expect city leaders to do anything to try to moderate the housing market or to incentivize affordable housing development and retention?
JONES: The City needs to restructure some of the existing zoning to allow for more higher-density projects near transit. We have many lower-income housing projects just sitting there ready to be rebuilt into mixed use hybrid opportunities. The land is there, let’s use it! I also feel that many of the affordability housing programs are geared for singles or couples and not for families; some thought has to be put into creating family friendly options of larger units.
KROPP: Unfortunately no, I don’t expect anything substantial to happen regarding affordable housing. The market is moving too fast for our city agencies to get ahead of it right now. The political process is a slow-moving beast, and many laws and policies have actually had the exact opposite impact than was intended. There is a political struggle for power right now in City Hall as well, as is evident by the proposed construction on 8 Washington Street, making it tougher for real change to occur. My hope is that someone will move toward carrying the burden of rent control and lower income housing over the population instead of individual landlords. By simply providing a tax credit for below-market rents, a landlord would have no incentive to vacate rental units. This way the population would be subsidizing rent control instead of individual landlords. I firmly believe that to resolve the problem, we need to incentivize people to keep lower-paying tenants in their properties.
AHLBERG: Affordability has been an issue in San Francisco for as long as I can remember. Thirty years ago when I joined Hill and Co., I distinctly remember having a conversation with someone wanting to relocate here from the Midwest. They were shocked at the prices. At the time, I commented that the only ones who did not seem to be shocked were those relocating from New York City. I would be very upset if the city leaders try to moderate the housing market. One of our inalienable rights is property rights. We already have restraint on that with rent control. Real estate sales should be free market. If the City wants more affordable housing, they should try to attract developers to build more of it and/or buy property to be able to provide more of it, as they did in Twin Peaks on Goldmine Hill.
BARBAGELATA: The reality is San Francisco is just too darn small to accommodate the demand associated with the hot tech boom. Having mandatory affordable housing attached to new development — which is a current zoning requirement — is only a solution for a small fraction of our citizens. Treasure Island should be developed for massive quality housing at reasonable price points that allows renters a chance to be close to city limits. TICs are still a great option for people to become buyers and own a piece of San Francisco, as the price points are still relatively affordable for SF standards.
ISAACS: It is tricky to push for more affordable housing, because developers can take their money anywhere. We are in a period where our city politicians are very pro-development, and I don’t expect any serious change that will add more units of affordable housing in the near future.
Interest rates remain low, albeit up slightly over the past year. Do you expect them to increase, stay the same, or decrease?
JONES: Rates will edge up, and we may see some more flexibility in terms of down payment percentage going down from 20 percent to 10 percent in some key price categories.
KROPP: I am expecting interest rates to tick up slightly over the next 12 months as the economy continues to recover and the housing market continues to show strength. I would expect the interest rates to approach 5.25 percent over 2014.
AHLBERG: All indications are that interest rates will remain low but will rise. However, we have to keep interest rates in perspective. When I started in real estate sales in 1980, rates were 18 percent. I never thought we would see single digit again. So to have rates where we have for the last several years is fantastic. Buyers should take advantage of it. Even if rates rise somewhat, which is expected, they are still very low. Sellers should keep the potential rise in mind as well. As rates rise, even modestly, it impacts buyers’ buying power. However, in San Francisco we have many all-cash buyers who don’t care if rates move. If rates rise significantly, it might slow down price increases.
BARBAGELATA: I think the new Fed Chief is not going to rock the economic boat with significant increases. Fractional increases and decreases as needed will be the norm, in my opinion.
ISAACS: There will not be enough change to price current buyers out of the market.
What do you think will be the top neighborhoods in San Francisco in terms of residential housing demand in 2014?
JONES: Mission Dolores, Noe, Glen Park, and Nopa. Areas near the shuttle routes and mass transit are always in demand.
KROPP: The neighborhoods showing the largest growth over 2013 have been the Mission district and Valencia corridor, with condo prices reaching $1,600 per square foot. I am expecting the tech community to continue to push deeper into the Mission, as the market will continue to be competitive. One of the largest growth areas in the city for 2013 and I am expecting for 2014 will be the Dogpatch and Bayview districts. These two areas along the Third Street rail have shown huge gains in values, and houses in the Bayview have seen increases in values of well over 50 percent. I expect the area to continue to evolve, bringing home prices into the low 600’s for a two-bedroom property and going up from there for larger homes.
AHLBERG: The southern swath of the city has taken off due to the high tech sector. That younger demographic likes the trending neighborhoods like Inner Mission, Mission, Potrero, Noe Valley — especially Liberty Hill, now known as Facebook Hill — etc. They like being in a neighborhood that their friends live in and have lots of walk-to destinations. These areas have caught on to that and many new restaurants, bars, and clubs are opening up. So those areas will remain strong. Neighborhoods on the high-tech and Genetec bus routes will remain strong. The north side of town is always strong. Established neighborhoods like Marina, Cow Hollow, Pacific Heights, Presidio Heights, and Russian Hill should remain in high demand. The buses mentioned stop along Lombard, allowing those high-tech workers who want to be in the Marina to easily live and play there.
BARBAGELATA: Mission, Noe Valley, South Beach, Telegraph Hill.
ISAACS: Inner Mission, Noe Valley, anywhere South of Market from the Embarcadero to the Castro.