Notes from the Field, October 2016

Notes from the Field, October 2016

Hi Everyone -

Continuing the trend from August, a) median home prices and b) the overall number of property sales have fallen month-over-month.

I’m seeing some buyer fatigue in the market and also some caution due to the upcoming election.

Read on to see what’s unfolding in the SF market -

Thanks,
Brad

The Macro — September Data

Total San Francisco Home Sales

377 Units

-15.3% compared to last month
+9.3% compared to last year

Median Home Price in San Francisco

Condo: $1,011,750
-7.1% compared to last month
-3.2% compared to last year

Single Family: $1,219,375
-3.0% compared to last month
+5.6% compared to last year

Months Supply of Inventory

2.8 Months

+21.7% compared to last month
+7.7% compared to last year

Mortgage Rates
(Week ending 10/6/16)

30-year fixed: 3.42% // fees/points: 0.5%
15-year fixed: 2.72% // fees/points: 0.5%

Rates are:
Flat compared to last month
Down compared to last year

The Shift Continues

September’s Bureau of Labor Statistics data show that the SF-Oakland-Hayward region had job growth in every category except Information and Education/Health Services, which were down just slightly. Unemployment also dropped slightly. These are both positive economic indicators which should drive increased housing demand.

Yet the San Francisco real estate market sales data indicate that buyers continue to step back from purchasing in the numbers and at the prices they had been.

Single family home sales prices are off 12.1% from this year’s peak of $1,390,000 in February. They are also off 12.7% from the peak of this multi-year up-market cycle of $1,400,000 in May, 2015.

The condo/loft market is also off 12.1% from its June peak of $1,162,500.

The number of sales in September of single family homes was the lowest September for the past 10 years, following an August that was also the lowest August for the past 10 years. Year-to-date, the number of single family home sales is down 6.5% compared to 2015, and the fewest sales since 2009.

Likewise, the number of sales year-to-date in condo/lofts is down 3.2% compared to 2015, and the lowest it’s been in over 10 years.

We attribute the continued downward shift to a combination of buyer fatigue with rising housing prices as well as to uncertainty with the upcoming election.

What I’m Seeing: Soft-Story Retrofits

One opportunity I’m seeing in the market is for multi-unit buildings that have yet to undergo soft story retrofit upgrades.

What Is a Soft Story Building: A “Soft Story” building is defined under local law as any wood-frame structure that:

  1. Was constructed or had a permit application for its construction submitted before 1978,
  2. Has 3 or more stories (or 2 stories over a basement or underfloor area that has any portion extending above grade) and 5 or more dwelling units (whether the dwelling unit is legally approved for residential use or not), including condominium buildings, and residential or tourist hotels (whether or not all guestrooms have kitchens), and
  3. Which has not had certain seismic strengthening work completed in compliance with applicable building codes.

Generally, but not always, such buildings will also have first story perimeter walls with large openings for garage doors or windows, few interior partitions, and/or construction materials that have deteriorated over time.

Program History: The program was initiated in 2013 as a means to ensure the “safety and resilience of San Francisco’s housing stock through the retrofit of older, wood-framed, multi-family buildings with a soft-story condition.”

# of Properties Affected: As of August 24, 2016, there are approximately 5,000 properties that are subject to soft story retrofit upgrades.

Most of these properties are in the Mission, Western Addition, Richmond, North Beach, and Marina.

The Opportunity: The cost of a seismic soft story retrofit is not cheap. Depending on the scope of the work and size of the building, these projects typically run in the $100,000+ range.

We’re seeing many owners who do not want to foot the bill for this project — and are thus putting their properties up for sale.

This is an opportunity for savvy buyers who seek multi-unit properties.

I’ve probably walked a dozen or so of these buildings in the last 60 days — and at the right price, with enough economic upside in rents, these projects are pretty appealing.

Curious about learning more about these projects? Let’s talk -

Other News and Notes

Facebook Live Video Series: Two weeks ago, I launched my real estate video interview series to a) bring more transparency to the real estate process and b) reach an audience at scale. I wanted to thank my first two guests — Ed Diaz of Movement Mortgage and Alexander Lurie of The Lurie Group — for being great interviewees and providing lots of insight. You can find recordings of their interviews here and here.

New Construction Watch: Curious about all the new construction projects going up in San Francisco? Check out this interactive map published by the SF Business Times for an overview of what’s being built across the City.

Parkside Flip Sells for $1.8M: A few newsletters ago, we highlighted a remodeled home on 20th Ave and Pacheco that was previously fire-damaged and uninhabitable. After an extensive remodel, it sold at the end of September for nearly $1.8M.

Here’s a timeline of events -

  • Listed in Jan ’16 for $598,888
  • Sold in Feb ’16 for $952,000 (with 27 offers)
  • Re-listed in Jul ’16 for $1,395,000
  • Sold in Sep ’16 for $1,768,000

Not a bad outcome for all involved.

A Sinking Skyscraper and a Deepening Dispute: By now, many of you have heard about the sinking and tilting issues affecting the 58-story luxury Millennium Tower. Here’s an update from the NY Times about the parties involved and potential outcomes.

Until next time,
Brad