Condo bargain hunters: you’re too late

After pandemic-related rush, inventory in The City is way down


First, there was the panic: the real estate market, which some argued was already softening thanks to a trend of increasing inventory in 2019, would collapse in the wake of the COVID pandemic. Maybe it’ll take a few months, but by autumn, many said, we’ll be in the throes of a housing recession — and it’ll be U-shaped, not V-shaped, with several years spent at the bottom of the U before housing eventually recovered.

Next came an adjustment: due to sudden, unprecedented changes in our lifestyles, single-family homes became more desirable than ever. With everyone sheltered in place, maybe forever, yards and home offices became the new “panoramic views and proximity to transit.” Concurrently, inventory plummeted as would-be sellers decided — wrongly, as it turned out — there was no way to move a house under lockdown.

Inventory scarcity being the secret sauce of market appreciation, prices of single-family residences continued to rise, reversing with breathtaking speed and force the trend we all thought we saw coming in 2018 and 2019.

What bargains remained were in the condo world. Even as desire for SFRs skyrocketed, condo values plummeted. So did rents — historically, in fact.

It all made sense if you were that type who tended to read between the lines or had access to good data. The ballyhooed San Francisco/California exodus wasn’t a free-for-all; it was very specific, demographically.

Those who traditionally eventually left San Francisco — young renters, first-time condo buyers — left all at once, some for single-family homes outside The City, some for greener/cheaper pasture elsewhere. Whatever their reasons, they left behind a softened market for rentals and condominium sales, providing breathless headline fodder for months and a glimmer of hope for renters and entry-level buyers in a position to short the market and nail down a bargain; all things being relative, of course. San Francisco never vacated its spot atop the U.S. market.

Even so, the state of condos and rentals was dire — or exhilarating, depending on your worldview — and seemed to have no end… until it apparently ended. After falling 23 percent during the second half of 2020, rents in San Francisco have stabilized during the first half of 2021, rising slightly in April and May to leave them 21 percent below their early-2020 peak.

Nationwide, rents are rising in one specific market area: single-family homes; which makes sense, given The New Way We Live, but they’re rising fastest in the high-middle and high-end of the rental market.

Per CoreLogic, a financial services company that analyzes property data, rent on homes priced at 125 percent or greater of regional medians rose 5 percent in April, 1.8 percent more than homes at the bottom of the market, 1.3 percent more than those at the middle and 0.8 percent more than homes at the high-middle (100 to 125 percent of regional median).

Rents are rising and renters are snapping up high-priced single-family homes, leaving condominium values as the evergreen casualties of COVID, right?

I’ve got some bad news, condo bargain-hunters: you missed your window. According to data collected by Redfin, the median price of a condominium in San Francisco, which peaked at $1.185 million in March of last year and had fallen all the way to $969,000 by January 2021, was $1.1 million in April. That’s an increase of 13.5 percent in three months and it isn’t preventing buyers from taking action; quite the contrary.

Over 1,000 condos sold in March and April of this year, more than any two-month period in the past decade. That’s a 400 percent increase from April and May, 2020, when a total of 311 properties sold and 165 percent from March, 2019, when pandemics were still something we saw in Gwyneth Paltrow movies.

Why have condos become the new gold rush? Simple: inventory. There were 1,800 condos on the market last October. That number has since been halved. New listings, which also peaked in October, are also down by half — and continue to fall, down another 15.4 percent between March and April. Months of supply, a metric reached by dividing active listings by average number of sales, is down to 1.7 after reaching 5.4 in May 2020

I’d say San Francisco condo buyers were taking their cue from Eddie Murphy and Dan Ackroyd in “Trading Places,” waiting for orange juice futures to bottom out before snapping up all the shares and creating their own boom market, except that most San Francisco condo buyers are probably too young to remember that movie.

But the message is clear, and it’s good news for civic boosters: even though a work-from-home future still looms, people want to live in San Francisco.

Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner. The Market Musings real estate column appears every other week.

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