Buckle your seat belts. The next two and a half months promise to be a wild ride, given the upcoming presidential election and the surging then subsiding then surging again pandemic.
San Francisco’s real estate market has enjoyed to this point something of a calm before the storm — all things considered, performing remarkably well. Nevertheless, Compass Real Estate cautioned in mid-August that “supply and demand conditions have diverged dramatically between house and condo markets, with the latter being far weaker and rapidly climbing into ‘buyer’s market’ territory. ”
Inventory is higher for both condos and single-family homes, but condos are much more plentiful, with six months of inventory. Typically a buyer’s market exists at eight or more months of inventory, a scenario we could reach in just a few months if these trends continue.
According to Socketsite.com, the number of homes on the market in San Francisco, net of new sales and contract activity, at one point in August hit 1,490, representing nearly three times more homes on the market when compared to the same time last year, and surpassing the recession-era inventory levels that were driving the market back in August 2008 and 2009. It’s important to note that nearly 74 percent of these recent 1,490 listings were condos.
STABILITY AMONG THE STORM
All of this said, home prices continue to be high. In fact, based on a rolling three months of activity, according to the San Francisco Association of Realtors, the median price for a single-family home reached an all-time high in July of $1,700,000. The median price for a condo and loft that same month was $1,250,000 — down from its all-time high of $1,310,000, recorded in October 2019.
Now there have been price reductions to be sure, especially in the condo market. Indeed, there were nearly 400 price reductions in July, with condos making up more than two-thirds of those reductions. But prices remain high, and in spite of a devastating hit to employment and the economy, prices have not dropped as precipitously as some might have expected.
Zillow founder Rich Martin explains why home prices keep going up in a recent article on Inc.com, calling it “The Great Reshuffling.” He believes the current pandemic has permanently reshaped the way people live and work across the country, and that’s having a profound effect on the residential real estate industry. Residential real estate he says is mostly a seller’s market. Meanwhile, commercial real estate is hurting for customers.
According to the article, 70 percent of Americans report working from home at least some of the time, and all Americans are spending an average nine hours more at home per day than they did before the pandemic. That means people have new priorities about where they want to live. A bigger backyard and room for a home office are more important these days than a short commute or proximity to a bustling downtown.
This would explain why single family home values in San Francisco remain so high, while the condo market is softening.
Meanwhile, Katherine Bindley, writing in The Wall Street Journal in mid-August, reports now that tech companies are giving their employees more freedom to work from anywhere, employees are taking them up on the option to relocate.
It’s early yet, and information about who’s leaving and where they’re heading is just starting to come in. But in a recent internal survey, around 40 percent of Facebook’s employees said they were interested in permanent remote work, and three quarters of those employees indicated they might move to another place.
While it’s too soon to measure the total net outflow of tech workers from the Bay Area, it’s already affecting the real estate market. Rents have started falling for the first time in years. In fact, according to the story, rents have fallen in San Francisco for the first time since 2014, when Zillow began tracking them.
September is typically an enormous month for San Francisco real estate. With the summer behind them, owners put their homes on the market and buyers become more active. Listings swell, sales jump, and in recent years, prices climb. Momentum typically carries into October, and then sales slow in November and then really decline in December and January.
Of course, 2020 is proving to be utterly unpredictable. The next 70 days or so will tell a remarkable tale, no matter what the outcome of November’s presidential election. Still, the purchase or sale of a home is always motivated by intensely personal things — a growing or shrinking family, a growing or shrinking income, a new set of priorities, new opportunities, or unanticipated obstacles.
Even during these turbulent times, life goes on. Fortunately for us, San Francisco has always endured, even during some of the nation’s ugliest chapters.
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