The downtown SF apartment market is falling apart, with homes selling at discounted prices

The downtown SF apartment market is falling apart, with homes selling at discounted prices
Written by boustamohamed31

San Francisco’s sluggish post-COVID-19 recovery is hitting the downtown condo market, with owners increasingly willing to sell at a discount amid ongoing layoffs and office closings, according to a new report from real estate brokerage Compass.

Median sales prices for condos in the greater downtown and south area of ​​the market — which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach — are down 16.5 percent from a year ago, according to the report. Since last December, the average condo sales price has dropped from $1.475 million to $1.23 million in these neighborhoods.

The drop in average prices in the central districts is twice as large as in the rest of the city. Outside the center, the average price of apartments fell 7% over the past year, while single-family homes fell 7.5%.

While real estate agents tend to be rosy in their marketing materials, the Compass report doesn’t sugar coat the current situation. He concludes that the decline in demand is being driven by a “triple whammy of economic, demographic and quality-of-life issues.”

“I knew the market segment had weakened, but I didn’t realize the extent to which things had changed,” said Patrick Carlisle, chief market analyst at Compass. “It was a bit of a shock.”

The problems are both macro and micro.

Nationally, you have a falling stock market, rising interest rates and inflation. Meanwhile, downtown San Francisco lags behind other cities in terms of office occupancy, and the lack of foot traffic cripples small businesses and makes the streets feel less safe. The high-rise apartment buildings that have sprung up south of Market Street over the past 20 years were designed to serve the hundreds of thousands of workers who flooded into the city each morning. With remote jobs, demand for housing has declined.

“San Francisco has gone from the hottest office market in the world to almost the weakest,” Carlyle said.

Two recent sales reports at Lumina, a two-tower luxury complex south of Market, show how the market has changed, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first includes 1,791 square feet, three bedrooms and three bathrooms on the 32nd floor of the tower at 338 Main St. This unit sold for $3.25 million in May 2016 and then listed again in August 2019 for $3.5 million. It hit the market again in September of this year for $3.15 million, before finally selling in November for $2.68 million, down 23.4% from 2019.

Meanwhile, a two-bedroom apartment in the same tower is on the market for $2.6 million, which, if sold at that price, would represent a 21 percent reduction from its 2016 asking price of $3.295 million.

While the current market presents an opportunity for buyers, the rise in interest rates to a 20-year high offsets any savings that could be achieved through the lower price point, Carlisle said. But for buyers with cash for a down payment or those willing to bet they’ll be able to refinance at a lower interest rate down the road, there are options.

“This is a great time for buyers to negotiate extremely aggressively,” he said. “If you see a unit you like, just ignore the asking price and decide what you’re willing to pay for it. There are many sellers who just want to move on. If they can get a deal done, they will, even if it’s far below expectations.”

Realtor Kevin Birmingham of Park North Real Estate said the report is consistent with what he’s seeing in the city. He just sold a condo in the Twin Peaks area that sold for $695,000. It closed at $680,000. The seller expected to get $800,000.

As such, many prospective sellers are looking to rent out their units. “The offers are being pulled and going straight to the rental market,” Birmingham said.

Greg Lin of Sotheby’s International Realty, who focuses on the luxury apartment market, said the optimism of 2021 — when San Franciscans got vaccinated and started to feel comfortable in the crowds again — has given way to uncertainty.

Some families who bought before the pandemic, expecting to split their time between San Francisco and wine country or Tahoe, have found they don’t have much reason to come to the city. Others bought apartments downtown to be near their children and grandchildren, only to have their offspring leave the city.

“A lot of our customers don’t use their apartments as much as they thought they would,” he said.

JK Dineen is a staff writer for the San Francisco Chronicle. Email: Twitter: @sfjkdineen

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