The constant interchange between home prices, interest rates, consumer confidence, job growth, employment rates, market place trends, seasonality represent factors affect real estate continuously. Additional factors include prospective home buyers’ savings for a down payment, the presence of real estate speculators and real estate investors in the marketplace, delayed retirement and home owners who have negative equity.
Given this complex interchange, the current real estate market offers a glimpse at how long-term trends, policies, and even strategies play out. In San Francisco, as in many other cities in the United States, housing affordability and transportation availability head the list of hot button issues. These issues have many implications as well as impact on the urban landscape. Some of the more obvious of these are social, economical, environmental and political in nature.
Job growth naturally is tied to both housing affordability and transit options. Over a number of years, most certainly since the 1990s, job growth is more and more concentrated in urban environments. Rural areas as well as outlying suburbs generate few jobs and many of the ones they do generate are low wage jobs. This means that opportunities have dwindled in smaller towns and rural communities and the millenials have little choice but to move to the cities. One of the by-products of this trend is intense competition for jobs in those cities, and that trend contributes housing shortage and housing affordability.
The demographic shift in United States’ cities creates more unstable environments, bubbles, and social issues like homelessness on scales not seen until now. Increased city populations also strain cities’ infrastructures, all of them but especially the transportation infrastructure. As an example, the San Francisco Bay Area is now one of the most congested traffic areas in the country.
The high cost of living, the tech influx, start ups, many which appear to neglect any social responsibility toward their community or workers, the gig economy, the survival mentality that reigns, the quality of life issues and so forth all affect all strata of San Francisco. Long-time residents see their neighborhood and the city change, sometimes for the better, sometimes not.
Some of these long-term residents here in San Francisco sell their now immensely appreciated properties if they are homeowners but many of them don’t because they have enjoyed Prop 13 and are in no position to replace their current lifestyle in the open and ‘free’ market. In fact, many of the long-time SF homeowners either operate Airbnb rentals or in-law unit rentals that supplement their income.
The long-term residents who are renters either leave San Francisco or those who have rent-controlled apartments hold on to them. But as they are entering retirement, many of the renters of rent-controlled apartments begin to fall into poverty as their income often drops severely.
Many of the renters who have moved to the city more recently carry the burden of high rents and often mitigate these high rents by living with a number of roommates. Granted, many of the newer residents are techies with huge salaries, though recent articles in local papers suggest that their huge salaries are not entirely sufficient to life in San Francisco.
Renters who are not techies tend to move on to other places more quickly. People earning lower wages often struggle from the start. Yet for every person moving out of the city, there are several more moving in. They continue the cycle.
New home building is another big zebra. While the city’s construction is apparent in all neighborhoods, many of the new developments either already built, being built or in the building pipeline comprise luxury units. And those even show up in neighborhoods where one would least expect them, like the Richmond District, Lake Merced, Visitacion Valley, and the Sunset District.
New development in San Francisco is expensive and requires experienced parties adept at navigating the city’s rules, regulations, pulse, politics, and permit processes. It only stands to reason that developers seek to maximize their return by leveraging the ‘best and highest use’ formula in real estate.
Some neighborhoods, such as Forest Hill, resent new development by perceiving it as detracting from future property values. The best and highest use formula runs into snags and opposition, depending on where it is being applied.
Bidding on homes is flaccid, though there are individual homes and sometimes condos which still get bid up. That said, home prices remain high and fall well into a million dollars. Lower priced inventory is scarce, as is inventory between the $1,000,000 to $1,500,000 range. Above that price range wide variety is the order of the day. The short of it is that San Francisco overall is still a seller’s market.
Interestingly that is also true for the many new construction luxury condos that came on the market in 2016. New developments continue to come on and one would think that means price concessions or other concessions from the sellers. At times there are some concessions but that entirely depends on the building, what phase the building is in, and a variety of other factors. Sellers tend to stick with original pricing in the new development condo market.
Home inventory is a driving factor in home sales, as of course are home prices. Let’s say, a single family home hits the market asking a million dollars, then sells for 5% above asking. This sale informs the market, as do all sales. The seller of say a neighboring home in similar condition expects to see the same (or higher) sold price.
Clearly, these factors are interrelated. They have psychological impact as well. However, this article is only touching on some of the surface implications and effects. Please e-mail or call us for a more in-depth analysis, whether you are considering selling or buying a home.
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