Much of the pandemic-era real estate action in The City is related to the glut of condominiums on the market. (Shutterstock photo)

It’s the condos, stupid

Young, new SF residents are the ones selling due to COVID-19

It’s March of 2000 and a newly-relocated me, flush with visions of future dotcom millions, joins an army of like-minded would-be San Francisco renters, all of us clutching “tenant resumes,” swarming rental open houses like red ants in baggy jeans, offering several months’ rent in advance, double deposits, anything to stand out from the unhoused but enthusiastically employed crowd.

How things have changed.

Last week, Zumper, the 8-year-old tech-forward successor to the apartment rental outfits that 20 years ago gave us printouts of available units and said “go,” made a splash when it reported that the average rental for a one-bedroom apartment in San Francisco had declined 7 percent in the past month and 20 percent since August 2019. As it stands, you can now rent a one-bedroom apartment in San Francisco for $2,830 — still more than double the national median ($1,231) but breathtakingly far from The City’s wacky apex.

Rents have fallen in each of the past seven months and obviously, that’s not a coincidence. As you likely know if you’ve visited a single news web site since March, COVID has pretty well punctured our urban bubble. Whether that puncture is a slow, patchable leak or the kind that sends us darting crazily around the room before collapsing in a heap on the ground is debatable. What’s not debatable is that right now there is a butterfly effect happening in the wake of these rental market “corrections.”

It was inevitable that the rental market’s volatility would impact the for-sale housing market, but its impact isn’t as simple as you may have been told. It never is, of course, and we make blanket statements about housing at our own risk. You may have heard that the for-sale market is in dire straits, with ballooning inventory and a flood of price reductions and this is true — as it applies to condominiums. Single-family homes so far are holding up pretty well and in fact showing slight increases in value over the past two quarters, but condos? They’re feeling the pinch; and it’s directly related to falling rents.

“The thing is,” a local agent told me last week, “with rents falling, a lot of landlords are just deciding to cut bait and get out. That’s one reason why there’s so many new condo listings.”

Here’s how it works:

The “exodus” from San Francisco, I’ve been told, is primarily made up of young renters and recent arrivals, residents with a tenuous foothold in The City who found that once you removed the reason to put up with expensive rent — because your job is here — it becomes pretty easy to leave. Enough of them have fled to make landlords, especially small landlords, who already may or may not have been collecting rent on their handful of units over the past seven months, decide to wash their hands of the whole thing. Forget six months free; just put the whole building on the market. Bingo: inventory glut, our first of the 21st century.

Enter massive, well-capitalized investment firms like Invesco advisors, which made news last week when it snapped up 255 units in Oakland. As a controversial local real estate columnist said a few months ago, these large concerns have the resources to sit on under-performing income properties and wait for the tide to turn, and it will turn. Even Zumper CEO Anthemos Georgiades, the superspreader of bad real estate news, thinks so. “There are so many signals that (the market) will recover,” he said recently, adding that he thinks it will take “years to fully recover, not months.” And when it does, outfits like Invesco will be there, ready to take advantage, just like they did in 2008. To quote the great Penny Lane, “It’s all happening.”

But right now “the San Francisco market” isn’t tanking; condos are. Single-family homes are OK — so far — which is befuddling industry analysts who don’t understand how living in San Francisco works.

What do I mean? I mean that everyone starts out as a renter. Eventually, some of them buy houses, some keep renting and some — a lot of them — choose to leave, just not all at once.

They leave because they want a yard, or they want extra room, or they want a two-car garage, or they’re tired of the fog, or they’ve been renting in the Marina and can’t imagine having to live in the Outer Richmond so why not just move to Marin? Some of them never intended to stay.

The people that stay? They tend to buy single-family houses, often in neighborhoods that don’t show up in tour books. And so far, they’re still buying single-family houses.

Unfortunately, condos make up about two-thirds of the San Francisco market and, short of a group of tech CEOs suddenly going tyrant and insisting their employees come into work, this trend isn’t going reverse itself soon. The short-term future of single-family homes in The City remains to be seen. For right now, though, it’s about the condos.

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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