Rising job cuts, sky-high interest rates, and empty office buildings are all in the headlines on a daily basis about the woes of San Francisco’s tech-driven economy.
But with urban populations showing signs of recovery, what is the net impact of these conflicting trends on the urban residential real estate market?
The latest data show that the economic downturn is hurting residential real estate in the city, with stagnant sales, falling rents and certain neighborhoods bearing the brunt of the decline. But the always optimistic real estate agent says the market may be ready for a return to heat.
Rents are falling in most areas of San Francisco
Rents are falling across San Francisco, dropping 1.7% in December, more than double the national rate of decline. And median apartment rents continued to fall through January 2023, according to the SF Controllers’ Office. While it’s common for rents to fall in the fall and winter before recovering in the spring and summer, city economists say the recent volatility in rents in SF is a sign that economic challenges are changing the behavior of renters and buyers. It reflects how it continues to affect the
“In the second half of 2022, [rent fluctuations] Concerns about the overall economic situation, declining consumer confidence and slowing household formation have further weakened mortgages, all of which have limited rent demand more than usual,” said the administration’s chief economist. Ted Egan said. “SF decreased above average, but not the worst in the country.”
And while many say pandemic-era challenges continue, such as the exodus of young people from cities in 2020 and rising concerns about crime and drug use, downtown rents are still at pre-pandemic levels. continues to fall below the level of
“I know a lot of owners who have classic Beaux Arts buildings that 10 years ago everyone wanted to live in. Lower Knob, Pork Gulch, the area down to the Tenderloin.” The quality of life is not as good as it used to be, with many having a 50% vacancy rate and being unable to find tenants to move in.”
Instead, the real estate and housing markets in the lower-middle-income neighborhoods south and west of San Francisco performed better last year. For example, Sunset will emerge from 2022 and rents he was 101% of 2018 levels. This is an indicator called the rent recovery rate. The Sunset also reported he one of the biggest year-over-year increases in average rents.
Impact on San Francisco Home Sales
Rent isn’t the only housing measure affected by the country’s recession. San Francisco home sales slowed after a phenomenal market in 2021 as rising interest rates and higher home prices dampened buyer interest.
What are the possible causes? Downtown SF’s vast stock of unsold and empty condos constitutes the city’s largest share of home sales, but in today’s economic environment, they are among the hardest to sell.
A massive outflow of Tech certainly won’t help. With approximately 2.4 million square feet of vacant office space in downtown San Francisco, what was once the busiest area of San Francisco is now largely a ghost town.
The property market in the area is similarly depressed, with neighborhood home sales plummeting.
Average downtown two-bedroom condo prices fell 19% last year, compared with just 4% in other cities. It also took him twice as long to sell a downtown San Francisco condo as it did for a condo in any other part of the city, and neighborhood condo sales prices are at their lowest since 2017. increase.
Single-family home sales, on the other hand, are stronger in San Francisco, showing more demand than the condo market.
Nearly two-thirds of SF home sales closed above the final asking price in 2022, compared to just 33% of San Francisco condo sales. The monthly supply (MSI) of condo inventory (the time it takes to sell all units on the market) is almost double the city’s housing inventory, indicating much stronger buyer demand for homes. increase.
However, the median home price in SF will fall 1% between 2021 and 2022 to $1.78 million.
The drop isn’t good news for homeowners, but experts say falling sales prices, falling unemployment and easing inflation are the worst possible end for the struggling Bay Area real estate market. He said it could be a sign that
“Our economy is very technology-based, and the fact that it’s easier for that industry to work remotely than others means it’s going to be hit particularly hard here,” New said. increase. “[The SF economy has] It was kind of like being a one-trick pony in tech, and it was great at the time, so I got through it. But I’m hoping that the next growth in our market will have a little more variety. And growth will come. When will that be?”
Are you ready for a comeback?
Some local realtors and market experts anecdotally say they feel like residential real estate in the city is beginning to recover from its post-pandemic slump.
All the hesitation of buyers whose homes have been on the market for months is said to have dried up. Compass analysts say agents are reporting increased shopper and buyer activity compared to the end of 2022.
“There is a lot of optimism in the market among agencies in 2023,” said Kevin Patsel, Regional Vice President, Northern California, Compass. “People are moving, buyers are coming out of the woodworking shops, and now that interest rates are a little off their highs, they’re ready to buy.”
Indeed, new data shows people are slowly returning to San Francisco, even as technology continues to lay off thousands of employees. It reportedly was the second most displaced region, and data from the U.S. Postal Service show that the pace of urban migration has slowed significantly since the peak of the pandemic. And the excitement of new technologies surrounding artificial intelligence could draw people back to the bay. Bay currently serves as the financial and intellectual capital of the generative technology industry.
result? Realtors and market experts are eager to turn the page at the rough end of 2022, ushering in a new era for cities. The closing has already closed for buyers on the city’s most expensive home at 3450 Washington Street.
“In some ways, I feel like this is a complete San Francisco renaissance,” Passel said. “People are coming back and changing their priorities. It seems they are leaving the pandemic behind now.”
No matter how optimistic realtors may be, getting San Francisco out of the real estate doldrums may require more than a surge in buyer interest.