Via Wolf Street

The glut is in neighborhoods with condo towers, particularly where the construction boom has been. Neighborhoods with low-rise buildings are less impacted.

By Wolf Richter for WOLF STREET.

The situation in the San Francisco housing market is getting increasingly curious. Even as there is a veritable land rush in many parts around the US, including in parts of the San Francisco Bay Area, San Francisco is now facing historic record high inventory of condos for sale, and sharp drops in condo prices. Inventory of single-family houses is also up and prices are mixed.

There were 2,532 homes listed for sale in San Francisco at the end of October, up 77% from the same week a year ago, according to data from Redfin. About two-thirds were condos. According to data from Compass, inventory of condos for sale was up 85% year-over-year. Inventory of single-family houses was up 25%:

This inventory of homes for sale does not include the condos in new towers that developers are trying to sell through their own sales offices, following the construction boom. That supply of new condos is difficult to quantify since it isn’t listed, but it’s significant.

Condo prices are heading lower. According to Compass, the average price per square foot fell 9% over the three-month period through October, to $1,061/sqft for one-bedroom condos, and to $1,076/sqft for two-bedroom condos. The median price of one-bedroom condos over the same period fell 8% year-over-year to $850,000; the median price for a two-bedroom condo fell 9% to $1.295 million.

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There have been numerous deals where condos sold below their prices from years ago. San Francisco real estate site SocketSite just reported on another such sale, unit #6G at the Lumina tower; it has now sold below its 2016 price. And it took over a year to sell it.

Back in July 2016, when the Lumina tower was completed, the 1,401-square-foot two-bedroom two-bath condo was purchased for $1.697 million. It was listed for sale in September 2019 at $1.975 million, reduced to $1.925 million in October, and to $1.895 million in November. But it didn’t sell and was pulled off the market. It was relisted in June at $1.795 million, reduced to $1.695 million in August, and has finally sold and is now in escrow with a price of 1.633 million. That’s a decline of $64,000 or 3.8% from the purchase price four years ago.

Tack on the closing costs on a $1.633 million deal, plus home owners association fees for over fours years, which Zillow lists at $1,216 a month, plus property taxes, and insurance, and pretty soon you’re talking about some real money.

Price reductions in October were running about double the highest rate in the 2012-2019 period, according to Compass, with listings of condo and TICs (Tenancy in Common) accounting for about 80% of the price reductions, and houses accounting for about 20% of the price reductions.

With prices of single-family houses, the situation is more complex. House sales are strong, and accounted for about half of total sales, according to Compass. The median price of 3-bedroom houses ticked up 1% to $1.62 million in the three-month period through October, compared to a year ago. But for four-bedroom houses, the median price fell 3% to $2.12 million.

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Sales volume has fully recovered from the collapse in April and May. Pending sales over the past four weeks were up 8.6% from a year ago, according to Redfin data. But inventory was up 77% from a year ago. And that’s the problem.

For years, there was talk of a “housing shortage” and an “inventory shortage” in the City, when in fact there was all this shadow inventory waiting to come on the market, and now it has come on the market, particularly condos that have turned this market into a condo glut.

In the neighborhoods were the high-rise condo construction boom was most pronounced – South Beach, South of Market, and Mission Bay – there is now 9.5 months of supply of condos, according to Compass. There is 8.0 months of supply in the Russian Hill, Nob Hill, and Telegraph Hill neighborhoods. And there is 7.5 months of supply in the Van Ness, Civic Center, and Downtown areas. There is much less supply in low-rise neighborhoods, with 2.7 months of supply in the Richmond District, Lake Street, Noe Valley, Eureka Valley, and Cole Valley.

As we head toward the holidays, normally much of the inventory for sale would be pulled off the market, and then be relisted in the spring, so that there’s very little inventory listed for sale over the holidays, which gives the real-estate media opportunity for a few weeks to rave about the extreme “inventory shortage.”

This would be the normal seasonal pattern. But seasonal patterns have been disrupted this year, with the peak selling season in the spring getting wiped out by the Pandemic, and with inventory then pouring on the market when it shouldn’t have. Sales have picked up too in the fall when normally they would slow down going into the winter. But inventory will still get pulled off the market before the holidays. So we should see inventory decline over the next seven weeks.

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