Downtown S.F.’s condo market is cratering, with units selling at reduced prices

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

Median home sales prices in the greater downtown and South of Market district — which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach — fell 16.5% from last year, according to the report. Since December of last year, the median home sale price has dropped from $1.475 million to $1.23 million in those neighborhoods.

The decline in median prices in the central districts was twice as great as in other parts of the city. Outside the city center, the median price of apartments fell 7% in the past year, while single-family homes fell 7.5%.

While real estate brokerages tend to be rosy in their marketing materials, Compass’ report doesn’t sugarcoat the current situation. It concludes that the drop in demand is caused by “a triple whammy of economic, demographic and quality of life issues”.

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

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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 office occupancy, and a lack of foot traffic cripples small businesses and makes streets less safe. The high-rise apartment buildings that have sprung up south of Market Street over the past 20 years were meant to serve the hundreds of thousands of workers who flocked to the city each morning. As these jobs disappeared into the distance, the demand for housing declined.

“San Francisco went from being the hottest office market in the world to almost being the weakest,” Carlisle 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 a 1,791-square-foot, three-bedroom, three-bathroom unit on the 32nd floor of the tower at 338 Main St. That unit sold for $3.25 million in May 2016 and then traded again in August 2019 for $3.5 million. It resurfaced in September of this year with an asking price of $3.15 million, before finally selling in November for $2.68 million, a 23.4% drop since 2019.

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Meanwhile, a two-bedroom unit in the same tower is selling for $2.6 million, which, if sold at that price, would represent a 21% drop from its 2016 price of $3.295 million.

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

“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 are able to close the deal, they will, even if it is 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.

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As such, many potential sellers are looking to rent out their units. “Enrollments are pulling back and going straight to the rental market,” Birmingham said.

Gregg Lynn of Sotheby’s International Realty, who focuses on the luxury apartment market, said the optimism of 2021 — when San Franciscans were getting vaccinated and starting to feel comfortable with the crowds again — weighed on the uncertainty.

Some families who bought before the pandemic expecting to spend their time between San Francisco and wine country or Tahoe have found they have little reason to come to the city. Others bought apartments in the city center to be close to their children and grandchildren, only to have their descendants leave the city.

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

JK Dineen is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @sfjkdineen

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