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No crash for San Francisco real estate, but expect a moderating pace in 2015

The California Association of Realtors (CAR) is predicting that 2015 will be the best of times and the best of times in the state: Price growth plus an influx of buyers and inventory is expected to strengthen residential home sales across the Golden State. But we all know that San Francisco is often a world unto itself, and things can happen differently here. So how can locals find out what to expect for real estate in 2015?

“The state will continue to see a bifurcated market, with the San Francisco Bay Area outperforming other regions, thanks to a more vigorous job market and tighter housing supply,” said CAR’s vice president and chief economist Leslie Appleton-Young.

To get an on-the-ground view of San Francisco’s residential property market, the Marina Times checked in with some local experts to get their predictions of prices, hot neighborhoods, and other things to expect from real estate in 2015.

Do you think 2015 will be a year of real estate price growth, stagnation, or decline?

Carole Isaacs, sales associate, McGuire Real Estate: Real estate price will continue to grow, but not at the high rate it has in the past year or two. Five to seven percent, depending on the neighborhood, is the figure often quoted. The Association of Bay Area Governments has estimated that by 2040 San Francisco’s population will have grown to 1 million people. Even with over 40 new buildings being built in the next five years, the demand for housing will still be unmet.

Kevin Kropp, agent, Vanguard Properties: In 2015 we will see steady growth but a little slower than in years past. As we see adjustments in the international markets and slow inflation, I am expecting interest rates to stay low for the foreseeable future. This will allow prices to continue to grow. The jobs report for 2014 showed continued growth with 2.95 million jobs added and more people keeping their jobs, which shows the overall strength of the marketplace.

Paul Barbagelata, broker, Barbagelata Real Estate: Until the absorption rate of supply and demand evens out, I do not see any slowdown, especially with rates so low combined with a hot stock market. Keep in mind that some neighborhoods have peaked to record levels in 2014, therefore they may experience a slight stagnation in appreciating values.

Stephanie S. Ahlberg, broker associate, Hill & Co.: I think it will be more stagnation for 2015 vs. growth or decline. With that said, there will undoubtedly be growth in some areas that continue to experience high demand. Those would be the starter-home price range, which still continues to attract multiple offers, and areas that are considered desirable by the very vibrant high-tech clientele. I don’t see any decline unless there is an unforeseen event, such as an economic downturn, earthquake, or other event beyond our control.

Have the large number of properties coming onto the market impacted pricing?

Isaacs: If this question refers to the new construction, the supply has not met the demand. These new projects for the most part are selling quickly. In fact, inventory overall is extremely low.

Barbagelata: Even when San Francisco has a strong inventory count of homes available, it hardly affects the frenzy. A- and B- rated properties will always sell very quickly at high prices.

Kropp: No, pricing has remained strong. From December 2013 to 2014 we saw an increase of 14 percent and a median price of $1,080,000 for single-family homes and 25 percent increase in condos, TICs, and co-ops to reach a median price of $952,000, according to the San Francisco Association of Realtors. We still have not met demand [and] are expecting growth to continue into 2015.

Ahlberg: There is actually a lack of inventory at the moment. Last week’s tour sheet was only 4.5 pages for the entire city, and this week was only 9.5 pages for the entire city. In a healthy inventory, there would be at least 25–30 pages of open house listings for Tuesday tour. If the low inventory keeps up, it might very well result in rising prices — the old supply and demand theory.

What do you think will be the major things driving the home-buying market in San Francisco this year?

Ahlberg: The major things driving the home-buying market will be the continued number of people making large amounts of money in the tech sector. This makes for many all-cash offers in the multi-offer situations. I have also been receiving calls from people being transferred here from other parts of the world. People are feeling better about the economy and ready to make a home move.

Kropp: Low interest rates with limited supply will continue to drive the market in San Francisco through 2015.

Isaacs: There are a number of forces in play in San Francisco: fear of being priced out of the market, fear of rising interest rates, increase in job growth in the Bay Area, foreign investors are continuing to invest in San Francisco real estate.

Baby boomers are a force in themselves for several reasons: Boomers’ adult children who have stayed at home want to move away and buy their own homes; baby boomers are living longer and not leaving San Francisco for retirement communities, resulting in fewer homes on the market; aging baby boomers who feel the isolation of the suburbs are looking to move to the city; the transfer in wealth between boomers and their heirs is the biggest in history, and they are helping their children buy homes.

Barbagelata: Lowest unemployment in the state, rental amounts are similar to mortgage payments now — so why not own something instead of renting? There is a Roaring 20s feel to the city right now, and young wealthy buyers want to show off their new digs and throw great parties.

Which do you think will be more popular with San Francisco buyers in 2015 and why: single-family homes or condominiums?

Kropp: I believe condominiums will out-sell single-family homes simply due to supply. Many people are priced out of a single-family home and decide to purchase a condominium, TIC, or co-op for that reason. Other people are simply not interested in the maintenance required in a single-family home. Younger tech buyers, who make up a large part of our purchases today, tend to want a condominium with full amenities.

Isaacs: Single-family homes are the gold standard for most buyers. Since there are only so many single-family homes available, many buyers must opt for condominium living. The end result is that both single-family homes and condos will be in demand. The exception is retired buyers who are looking to downsize and enjoy a life with less home care and more freedom. Condo living with an elevator and a doorman is often their first choice. Younger buyers tend to fit into one of two categories: Nesting couples who can’t quite afford a single-family home and fall back on a condo hoping to move up in a few years; and single people who work long hours and want “to get into the market.” This buyer also is hoping to move up in a few years and perhaps keep their first home or condo as an investment property.

Ahlberg: In my experience, buyers would rather have a single-family home if they can afford it. With San Francisco’s high prices, many have to turn to condominiums to start. There are also a number of new condo buildings, and more coming online this year. These tend to sell quickly as “brand new” has a strong appeal with the younger and Asian demographics. So there will likely be more condo sales this year than single family.

Barbagelata: Condos for sure. The condo market connects with the single tech buyer more that currently represents the number-one buying demographic in San Francisco.

Which San Francisco neighborhoods do you think will attract the most buyer interest in 2015?

Ahlberg: This is a great question. As I work on the Northside of town, I get most of my requests for those areas. The traditional neighborhoods like Pacific Heights, Russian Hill, Marina, etc., always seem to stay strong. However, the southern neighborhoods have become very strong, and I expect them to stay strong.

Also, that is where the majority of the new construction is taking place. I think Hayes Valley, Mission Dolores, and Glen Park are some of the neighborhoods to keep an eye on.

Barbagelata: All of Noe/Mission/Dolores Heights, etc., continues to be on fire. The Sunset is creating a buzz with younger buyers and was rated one of the hottest neighborhoods in the country recently.

Kropp: Noe Valley and Bernal Heights continue to be incredibly strong for buyers in San Francisco, but in 2014, 9 out of 10 of the most expensive homes sold were in Pacific Heights and Presidio Heights. The important thing about San Francisco to understand is that it isn’t one market. We have about 10 to 20 micro markets. Many buyers limit their search by a specific street, Lake Street, California, or Market Street, for instance, or by hills. People will look in Pacific Heights, Ashbury Heights, the Lake District, and Noe Valley all at the same time to get what they want.

Isaacs: Many new first-time buyers ask about the Bayview/Hunters Point neighborhood. Trulia reported: “Sales prices have appreciated 44.1 percent over the last five years in Bayview.” The Bayview will attract urban pioneers, but it seems unlikely that it can continue this rate of rise in price. Sunnyside is popular with single-family home buyers looking to ride the corporate shuttles at the Glen Park BART station or to take the freeways south or to the East Bay. Mission Terrace is also a candidate for first-time home buyers as buyers are priced out of Noe Valley and Glen Park. SOMA, Yerba Buena, Mission Bay, and the Inner Mission will continue to attract buyers to both new high-rise construction and smaller existing homes and condos. In general, anywhere within walking distance to a corporate shuttle will attract buyers.

Will a shuttle rider please tell me where they think there will be a new shuttle stop? I would love to sell you a home nearby before prices go up!

Name a San Francisco neighborhood or two that you think is going to be a relative bargain this year. Why?

Kropp: The Portola District and Silver Terrace is where I see many entry-level buyers going. The Bayview has seen incredible growth in 2014, and some people are tired of the competition. I believe the market will drive many buyers to discover the great weather and sunny slopes of the Portola District.

Barbagelata: Forest Knolls — it’s still relatively unknown but offers detached well-built homes with some amazing views close to Cole Valley, Inner Sunset, and UCSF.

Ahlberg: Gosh, I wish I knew the answer to that. Even the previously little-known neighborhoods like Ingleside Terrace, Midtown Terrace, Bayview, and so forth are taking off as the more traditional neighborhoods rise in prices. My suggestion to a buyer would definitely be to be open to some of these smaller, less-known neighborhoods to try to get a better value.

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John Zipperer is the former senior editor of Apartment Finance Today and Affordable Housing Finance. E-mail: [email protected].

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