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Real Estate Investor

The most-desired city

Before you even ask: No. “No” is the answer to your question about whether San Francisco’s real estate market has come down to Earth. It hasn’t.

In fact, nothing has changed that would counter the publicity the city received with a well-circulated photo of 16 De Long Street, a decrepit-looking shack with 765 square feet. (Google it.) The Outer Mission home is priced at $350,000, despite looking like a stiff wind could blow it over. And it might well be sold by the time you read this.

As they say on public radio’s Marketplace, let’s look at the numbers.

To recap, the previous median home price peak in San Francisco was $895,000 in 2007. As of midyear 2015, the median home price in the city is $1,250,000, reports Paragon Real Estate. Between 2007 and 2015, that median hit a low of $690,000 in 2011. (The median price for condominiums here went from $770,000 in 2007 to $1.1 million by June 2015, with a low of $647,000 in the trough of 2011.)

John Burns Real Estate Consulting says that “San Francisco … has become permanently more expensive over time as it grew its economy and desirability and became much more supply-constrained.” Burns’s latest Intrinsic Home Value Index claims San Francisco homes are overvalued at 29.3 percent. But when Quicken Loans compared what homeowners perceived the values of their homes to be and what professional appraisers estimated them to be, it listed San Francisco second in the nation (after San Jose) in which appraiser estimates were higher (by 5 percent) than homeowner estimates.

The San Francisco area did rank in first place in Realtor.com‘s

list of the 20 hottest real estate markets as of the end of August. Pacific Union notes that San Francisco homes are selling in just 29 days — we’ll see if the $350,000 shack meets the challenge. However, there is always a caveat when you go deep-diving into data from real estate research firms: The numbers may vary. Pacific Union says those fast-moving houses in San Francisco are going for a median price of $748,000, which, as any real estate investor will tell you, is about the price of two tumble-down shacks on De Long Street.

EVERY BARGAIN IS RELATIVE

Assuming someone has snatched 16 De Long Street out from under you but you still want to pay less than $1 million, where can you go? Paragon cites the Excelsior/Portola region as having the most house sales under $1 million; there, the media sales price is $800,000. In second place was Visitacion Valley/Silver Terrace, where the median price is $681,000, followed by Bayview/Bayview Heights at $660,000.

Condos of course typically cost less than single-family homes, and they are believed to appreciate at a slower rate. To buy a condo, co-op, or TIC in San Francisco for less than $1 million, Paragon directs you to the Outer Richmond or to Diamond Heights, noting that the “overall S.F. median condo price in the 2nd quarter of 2015 was about $1,125,000. Sales under $1 million still occur in almost every area of the city that features these property types, but a studio unit in Russian Hill may cost the same as a two-bedroom unit in downtown.”

If luxury is your goal and you have $2 million or more to spend, check out Pacific Heights, Presidio Heights, the Marina, and Cow Hollow, which have the most homes for sale priced at $5 million or more. Noe Valley, Eureka Valley, Cole Valley, Clarendon Heights, and formerly sleepy Glen Park have the most homes for sale between $3 million and $5 million; those neighborhoods also have the most units for sale between $2 million and $3 million, says Paragon.

THE COMMERCIAL MARKET

It isn’t just private residential housing that is off-the-charts in San Francisco. Commercial real estate — office, multifamily, retail, and industrial space — is also surging, and JLL Edge calls it a bubble. It’s worth considering what they’re saying.

“Access to top talent is the leading reason San Francisco is being chosen over Silicon Valley,” says JLL Edge. “Today’s hot startups are software/internet-based companies, not the hardware companies that gave Silicon Valley its name. Without reliance on space-intensive R&D facilities, these companies can base location decisions purely on people.”

Briefly stated, San Francisco has the people power that these companies need, especially for the younger workers tech companies crave. Tech companies new and old are taking up massive amounts of office space in San Francisco, where the office space is artificially constrained through voter initiative just as the residential market has been kept smaller than is needed to service the market need.

We’ll let JLL give the benediction: “San Francisco’s commercial real estate market will correct, it’s only a matter of when, and how severely. … Is San Francisco’s talent pool deep enough, and is the region’s housing/transportation infrastructure strong enough, to support the total number of jobs that this speculative leasing implies? Yes, over half of San Francisco’s new office construction is preleased, but what about the rest? Unless preleasing continues at its torrid pace, office developers will face similar moments of truth as their buildings near completion with vacancy left to lease.”

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