San Francisco Condo Towers 2016

We’ve compiled the monthly sales data for new condominiums in San Francisco over the past two years.

While it’s not an aggregate statistic which the sales and marketing companies release, total contract signings in the first half of 2016 totaled under 400, down over 30 percent versus the first half of 2015. And sales volume, the purest measure of market demand, was 50 percent lower on a year-over-year basis in the second quarter of the year.

At the same time, the inventory of unsold units has increased over 40 percent to roughly 1,200. And as we first reported last week, a pricing index for new condos is San Francisco has turned negative on a year-over-year basis for the first time, having peaked exactly ten months ago, at which point it was 5 percent higher in the absolute.

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Comments from “Plugged-In” Readers

  1. Posted by Dave

    I assume the distinction between contract signings and sales volume is that some contract signings end up falling out of contract and don’t end up in a sale while sales volume is finalized sales? Hence a purer measure?

    Are numbers available for how many new units will come on line in the 3rd and 4th quarters of 2016? And the first two quarters of 2017? Did the first half of 2016 represent the peak of new units coming online for a 6 month period?

    [Editor’s Note: While one could draw a distinction between contract signings and sales, we’re using the two interchangeably above.]

  2. Posted by Louis

    Signings and closed sales start to diverge in a market downturn where people back out of new construction contracts. This happened in large numbers on One Rincon phase 1 where early sales, signed months before delivery, were way over market when closing time arrived.

    That would be a real sign of a down market. Have not seen this yet.

    Far as I can tell what have seen so far is a sharp slowdown in velocity and build up of inventory, also market down signs, but different from what happened in ORH and MIllenium. If “signed” down, obviously “closed” will not be up.

    • Posted by Dave

      Speaking of One Rincon Hill, another thing not seen so far are major delays in projects set to go. Construction on Two Rincon Hill was delayed about 3 years as I recall.

      • Posted by 94116

        Rincon II, North Tower, was delayed because of the GFC in 2008.

        • Posted by San Fronzischeme

          Which was in great part caused by a crash in real estate prices which was mainly caused by overbuilding which itself was caused by speculation and unrealistic expectations.

          ORH was a part of the speculative bubble and is a symbol of it. Phase II is a symbol of the local boom and the national recovery.

          • Posted by Fishchum

            The 2008 crash occurred due to banks lending to people who had no business borrowing that kind of money. It wasn’t due to overbuilding.

          • Posted by San Fronzischeme

            The chicken and the egg.

            Some regional markets were overbuilt. And the overbuilding happened because prices and scarcity gave developers the false impression there was a financial incentive to build.

            There was an oversupply of homes for sale in SF otherwise why else would have prices gone down by that much? Some of the new condo towers for instance had some speculators who just gave up their keys when they saw they were under water and unable/unwilling to make payment. That was short-sighted in retrospect, but when you’re $X upside down and $Y in the red every month, you see what’s happening right now and how much pain you can get. These units were oversupply, at the time.

            Now you could argue that since demand (at a lower price point) was still present, there was no over-building, but the reality is in numbers. If you built a condo tower that cannot sell at the price you wanted, then you have built in the wrong segment.

            An interesting case is condo towers in Las Vegas. LV has seen its population increase by a lot in the first 1/2 of the 2000s. Prices went up and a number of 500 feet tall condo towers were built. The prices were in the $500 to $600/sf. Many were snatched by well-off Californians looking for a cheaper alternative than a rental in their local markets. Rents never caught up with sale prices and most of these developments lost 70% of their value. Was this overbuilding? Technically no, since now most units are now occupied (bargain hunters from 2008-2012 can afford to collect a much lower rent).

            But it was overbuilding in that segment.

  3. Posted by 4th Gen SF'er

    I’ve been hearing it from friends connected to RE that condo sales are down in all parts of the SFBA. Again, as per my last posting, schools are coming into session August 15th. Sign ups deadline has not quite passed yet but people are getting assignment letters already. So from now till …IDK, March or April next year I presume sales will not be going well.

    • Posted by anon

      There are plenty of seasonal factors in RE. That’s why people look at Year over Year and/or seasonally adjusted numbers.

    • Posted by SocketSite

      Seasonality factors, such as holidays, typical vacation times and the school year, are why we compare sales activity and inventory levels on a year-over-year basis and over rolling periods of time, as reported above.

  4. Posted by JR "Bob" Dobbs

    Editor, would you be able to provide the sales numbers for (important) context? Here is why I ask. Sales down 30% YOY does indeed sound like the market is much slower. But assume the following hypotheticals: Sales in 2013 – 1000, in 2014 – 3000, in 2015 – 10,000, in 2016 – 7000.

    In that hypothetical situation, sales would be down YOY by 30%. Yet this would still indicate incredibly strong sales, high demand, and a very hot market. I’m not saying the situation today is anything like this, but without more information, one really cannot draw any meaningful conclusions.

    • Posted by SocketSite

      There were under 400 reported contracts written in the first half of the year, under 200 last quarter.

      • Posted by JR "Bob" Dobbs

        Merci — yes, that certainly indicates a real slowing.

        • Posted by primeminister

          That’s two quarters versus one quarter.

          • Posted by JR "Bob" Dobbs

            You’re right — not really crystal clear. But the numbers are not huge as in my hypothetical. Editor still didn’t provide numbers from last year. I assumed that there were about 560 in the first half of last year – down to 400 this year, given the “down 30%” report. And it looks like the pace in Q2 was about the same as in Q1 indicating a leveling off. But it would be better to have real, granular numbers.

  5. Posted by mr. miyagi

    Nobody took me up on my $10k bet that closing prices for detached SFR’s would be down 20% in SF within 8-12 months. Are the perma bulls conceding that the market is shifting and will crater? It is truly obvious that this is the case.

    • Posted by SFRealist

      You have an unusual definition of “crater”

    • Posted by hgh

      Crater? Is that what happens when prices set for a ballooned market come back to earth and still represent a giant jump in values? The market took 5 years of increases early.

  6. Posted by Sam

    So when is it safe to move back to the Mission and get a 2BR for under $2500?

    • Posted by SFrentier

      Ha ha, you’re a good 10+ years too late for that gig.

      • Posted by San Fronzischeme

        In 2006 you could find 2BRs for under $2000. I think 2010 is when things started to get a bit crazy in terms of rent.

        • Posted by BerkMerk

          Yup. I got a 2BR in the Mission (east of Mission St) for 1850 back in late 2010. Today, same unit type goes for about 3600. My current rent is 2200 now.

          • Posted by San Fronzischeme

            Rents even went down marginally in 2009 or 2010 I think.

  7. Posted by unlivable city

    Folks its like the stock market. When a stock has a really low daily trading volume, a very few more or less can make that volume swing wildly. Bottom line: Real Estate in San Francisco is on an amazing run unless you are a greedy sleazy developer selling wildly overpriced ugly boxes. Oh, wait…

  8. Posted by tommy strange

    Twobeers has been right for the past 3 years here. This is a global asset central bank funded bubble. Unfortunately those of us here at the ‘bottom’ are going to suffer the most from the coming depression. So I am not laughing. Suggested experts: Michael Hudson, Yves Smith, Nomi Prins, Pam Martens, William Black.

    ZIRP and QE fueled this, along with international speculative capital moreso than any ‘tech’ money. And ten thousand empty condos, will not suddenly be rented out affordable to us working and middle class. They will be padlocked and guarded against the proles, empty of course. Thanks for the 7 year frenzy. It’s not been fun.

    Meanwhile at least 30,000 of my ‘kind’ were forced out of here, and Oakland, and the boroughs of NYC etc. Thanks to the speculators for making us lose our jobs, have to pull our kids outta of community schools , and actually decrease urban density all over our cities. At least the majority of Americans now want some kind of ‘socialism’….I can be thankful for that.

    • Posted by Fishchum

      And yet two beers has never produced any numbers regarding “international speculative capital” with regards to San Francisco real estate.

      • Posted by moto mayhem

        and no one has, because its mostly a myth.

  9. Posted by Dave

    In terms of granularity, as I recall SF is adding around 2000 new units this year and about as many next year. Maybe someone can confirm those numbers. If they are close correct then absorbing 800 units per year (projected from the rate for the first half of 2016) means a growing excess of new units – in the next few years.

    In that scenario what do less desirable residential projects set the break ground in the next year (such as the Hawthorne/Folsom Dim Sum restaurant project) do? Not sure if the Hawthorne project is set to break ground in 2017 but I am using that as an example of a less desirable project. Location primarily, lack of views, poor street life.

    Delay breaking ground with the idea they don’t want to come onto the market at a time when there might be an excess of new units – many of those units more desirable than their planned units. Or forge ahead?

    • Posted by moto mayhem

      i think 2000 units / year is the historical number. i thought we were producing over 4000 this year and next.

      [Editor’s Note: San Francisco’s Housing Pipeline, which includes an accounting of the 7,300 units of housing currently under construction in the city.]

      • Posted by Dave

        Thanks. So 3500 units/year for the next several years.

        Even if the absorption rate doubles to 1600/year (from current projected 800/year) there will be a large oversupply of new units. These 7300 units are under construction so that is baked in.

        It will be interesting to see what happens with projects approved and set to break ground in 2017. Especially if the 400 first half absorption rate holds through 2016.

        I do recall a 3000 number but I think that was in reference to Seattle and how they have been creating more housing than SF for a while now.

        4000 a year seems high. Maybe that was for 2 years? I was trying to be conservative and its likely 2000 plus which makes the potential excess worse. Assuming absorption stays at 800/year or even jumps to 1000/ year – for the next few years anyway.

        I know quite a few more residential units have been proposed for the next few years but have not broken ground. That is where I think we might start to see projects delayed if low absorption seems to be the rule for the next few years.

        I think most projects have a 3 year window to start construction so it might make sense for some to say not start in 2017 but in 2019.

        • Posted by Alai

          Or, you know, absorption is low because prices have been going up at ludicrous rates and have hit an unsustainable high.

  10. Posted by LJL

    People (Dave, SFronzi) are talking about oversupply as if there is a correct amount of supply. I guess over or under depends on whether you already own and don’t want prices to go down or whether you’d like to buy and wish they would? The units will sell eventually even if the prices drop a bit. Or, somebody please tell me how we know what the right amount of supply is.

    • Posted by moto mayhem

      the idea of oversupply is a joke at this point. Even if we tripled building, we wouldnt be in an oversupply situation for years, if ever

      • Posted by Dave

        The idea of an oversupply is not a joke. If one keeps in mind that the RE market is segmented.

        The hi-end market is seemingly approaching an oversupply situation. The price cuts on SFH have mostly been in the top tier homes.

        There are only so many who can afford a 2 bedroom condo w/o a view on Long Bridge for 1.8 million.

        There is an oversupply seemingly coming into play at the hi-end of the market. The woeful under supply of affordable units however remains and won’t be more than tweaked at the margins even if there is a 15% or so price drop.

        • Posted by Alai

          If those “top-tier” units were in any other location, they’d sell for a third of what they sell for here.

          It’s only an oversupply if you think that the current price is the ‘proper’ price. Simply cut the price (to something that’s still far more expensive than in other cities), and voila– no oversupply.

        • Posted by moto mayhem

          if there is an oversupply on high end, then prices will drop and they become affordable to a different class of people. but still very very very very far from an oversupply situation

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