An Inflection Point Nears..

An inflection point is nearing in the condominium market in San Francisco. Values can only drop for so long, or more appropriately said, the select group of buyers in the market could only retain their exclusivity for a certain period of time.

In analyzing buyer demographics over the past 3 months, condos and TIC’s took the biggest a hit when investors and pied-a-terre owners fell out of the market. In a regular market, these property types have 3-4 main buyer types:

• Owner-occupants

• Investors

• Second home buyers

• Downsizers/Upsizers

Generally speaking, the more buyer types open to a property and the larger number of individuals in each group equals the demand.

Investors represent a significant portion of the market and caters for the number of privately owned rental properties available. With a growing trend of people leaving San Francisco in search of space, the city has seen more vacancies in rentals than ever before, leading to decreased rental values city-wide, particularly surrounding downtown. This trend has all-but caused the investor buyer pool to remove themselves from the market in search of more stability in ROI. I’ve long discussed with investors and sellers that an inflection point is nearing where opportunistic investors will see a shift in sentiment, where buy-in values are low enough to tolerate the risk of 6-12 months of decreased rental desirability, betting on the long-term stability of San Francisco as a real estate market. After all, few people have ever lost money investing in SF real estate. With 3 weeks straight of total sales increases, it seems that point upon us.

Those in the market for second-homes, or pied-a-terre buyers, looking to own a place in the city to come in on the weekends and spend time in the vibrancy of San Francisco seems to be a trend of the past, or at least momentarily on pause. Along with a variety of macro-economic factors leading to less-frivolous spending, the lifestyle these buyers were seeking as a result of the asset acquisition is also off the table. Restaurant restrictions, shows & theatres closed, and the night scene of the city severely hindered, it seems this buyer pool is out of the market for now. 

Ironically, higher-end condo owners in San Francisco are now seeking pied-a-terre’s in the suburbs or in the foothills of the Seirra’s, offering them escape and tranquility from the busyness of the city when they don’t have to be localized to San Francisco anymore.

Sales data is showing a steady uptick in condominium & TIC sales dating back to the end of August, suggesting owner-occupant buyers are capitalizing on the decreased competition in the market. 

The past 3 weeks:
*in District 5,D6,D7,D8 & D9

8/31 - 9/6 = # of condo /TIC’s pending: 29

9/7-9/13 = # of pending: 38

9/14 - 9/20 = # of pending: 43

The major condominium district’s surrounding downtown saw increased absorption rates (properties going into contract) over the past 3 weeks, suggesting an uptick in attention, showings, and buyers willing to submit offers on the north-eastern half of the city. Given real estate data is a lagging indicator of what’s actually happening in the market, it will be a telling data point to measure what these properties ultimately sell for in comparison to the 2019 market or even the early-pandemic market. 

To carry over from my previous article, sellers are still finding themselves competing with other listings on the market to draw attention and attract more potential buyers to schedule in-person showings. This trend hasn’t slowed, if anything it’s enhanced. Price drops continue, re-photographing, and re-launching marketing campaigns is something we’re seeing more and more, as listing agents are doing everything they can to draw eyeballs to the property they’re selling.

In recent weeks, I strongly advised clients to let offer dates pass and submit our offers in the wake of a listing receiving little attention or traction. Seller psychology in those wake periods is usually when the best deals happen for buyers. Owners are finding themselves asking the difficult question of ‘Are We Willing To Take Less For Our Home Than Originally Desired?’ If no one bids or only an offer or two comes in well below expectation, sellers are forced to re-assess their ultimate goals.

This past week felt different from those previous, however. Properties that are priced well and were in decent to exceptional condition and in prime locations were going into contract within 7 days which is the speed they move in a regular market. We found ourselves suggesting that our clients write offers on certain properties in anticipation of multiple offers being presented again, and suggesting presenting our best and final from the jump. In multiple cases, we offered well above asking on properties and still came up short.

The overwhelming thought is owner-occupants are capitalizing on the exclusivity they have in the market while investors and second homeowners are paying attention elsewhere.

As always, reach out if you have any questions about the market.

Tim McMullen
Founder/Realtor
Tim@condoweekly.com