Headline-grabbing tech and financial industry layoffs and a slowing economy are likely to cool San Francisco’s pricey housing market
Article courtesy of Mansion Global
The drumbeat of layoffs at companies such as Meta, Robinhood, Adobe, Salesforce and Twitter is especially loud in the San Francisco Bay Area, one of the most expensive housing markets in the U.S. and a major tech hub. While real estate agents don’t see a mass exodus from the area, there are bargains to be found in the luxury market in some parts of the city and its surrounding suburbs.
“The housing market in San Francisco is definitely in flux,” said Joel Goodrich, director of the estates division of Coldwell Banker Global Luxury in San Francisco. “In 2021, there were 27 sales of properties over $10 million, compared to 12 in 2022.”
The price per square foot declined from an average of $1,901 for homes and condos that sold in the third quarter of 2021 to $1,631 during that same period in last year, according to Carrie Goodman, a real estate agent with Sotheby’s International Realty in San Francisco. In 2021, the ratio between the list price and sold price was over 100% because—meaning bidding wars were regularly pushing sales over the original asking price. Since Sept. 1, however, the average seller has received 93% of their asking price, she said.
For buyers, lower prices are a boon, especially for buyers who have cash and don’t need to manage higher mortgage rates.
Still, Ms. Goodman said, “San Francisco is not dead.”
“The amazing opportunity is mostly that for the first time in years, buyers can really negotiate,” Ms. Goodman said. “But it’s a nuanced market. Even though there are some bargains, there are also places in the city with an A+ location, high ceilings, natural light and a garden that are getting multiple offers.”
On the flip side, Mr. Goodrich points to a Pacific Heights single-family home originally listed in mid-2021 at $28 million that recently sold for $13.5 million.
“One big shift in the market since the start of the pandemic that seems to be staying is that buyers don’t want fixer uppers,” Mr. Goodrich said. “There used to be a competitive market for people who wanted to buy old houses and fix them up, but now anything that needs work is deeply discounted.”
Where to Look
While there are “nuggets” of bargains in every neighborhood in the city, Ms. Goodman said that downtown has seen the most price reductions.
“If you want a luxury condo downtown, go for it right now,” Ms. Goodman said.
The condo market offers the most opportunities for buyers now, Ms. Goodman said.
“There aren’t workers downtown and not a lot of foreign investors there, either,” Ms. Goodman said. “It’s not a fire sale, but if you want a condo in the Four Seasons or at One Steuart Lane, you can negotiate now on price, upgrades and getting your condo dues covered.”
Single-family homes in neighborhoods such as Pacific Heights are always a precious—and pricey—commodity, Ms. Goodman said.
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“San Francisco really is a tale of several markets now,” Mr. Goodrich said. “The core historic luxury neighborhoods like Nob Hill, Russian Hill, Pacific Heights and Marina have been somewhat immune from the quality-of-life issues that we’re seeing downtown and South of Market. The price per square foot has dropped 15% to 20% downtown, compared to 10% to 20% in the core markets.”
To evaluate a bargain, Mr. Goodrich recommended comparing the asking price to pre-pandemic prices from 2018 or 2019 for that property or a similar property rather than the 2021 price.
“If the price is lower than pre-pandemic prices, you’re in bargain-value territory,” he said.
The luxury market outside the city limits in the East Bay suburbs such as Alamo, Danville, Walnut Creek and San Ramon is “alive and well,” said Jill Fusari, a real estate agent with The Agency in the Bay Area. Still, it’s not a sellers’ market anymore, and buyers have a little more leeway with their offers, she said.
“You can get a better price on every property now than you could in 2021,” Ms. Fusari said. “It could be 20% or even 40% less than in 2021, but that market was an anomaly and people were paying well over asking prices.”
The $2 million to $3.5 million market is affected the most because buyers in that range typically take out a mortgage, Ms. Fusari explained.
“Their purchasing power is down because rates are higher,” Ms. Fusari said. Someone who could afford $3.5 million last year is capped at $3 million now.”
The East Bay is considered more affordable than San Francisco, Marin County and the South Bay, Ms. Fusari said.
“I recently sold a $9 million house in the East Bay that would have been double that if it was in Marin,” she said. “But buyers looking for a bargain here on a luxury home are more likely to find one only on homes without a backyard, on a busy street or not renovated.”
On the flip side, prices are higher than a few years ago in emerging markets in the city such as Noe Valley, Buena Vista and Glen Park because they’re a little closer for an easier commute to the Silicon Valley for people who want to live in the city yet work there, Mr. Goodrich said.
Cash-Buyer Advantages
Cash buyers have an edge in a competitive market and, in a slower market, they may be even more enticing to sellers, said Mr. Goodrich.
“There are so many uncertainties with financing now that buyers with cash have a negotiating advantage,” Mr. Goodrich said.
Some cash buyers assume they can make a low offer with a lot of requests for the sellers, but Ms. Goodman said that offers still need to be a win-win for both sides of the transaction.
“Some people offer less if they are offering cash, but to be successful, you still need to make a solid offer,” Ms. Fusari said. “What that is depends on the seller. Someone who is really motivated and just wants to be done with a property is more likely to accept a lower offer. Generally, most sellers now are motivated because they know this isn’t the best time to put a house on the market.”
Of course, buyers need to beware that a bargain now may not always turn into an appreciating asset. But Mr. Goodrich is bullish on the San Francisco housing market after next year.
“This has always been a boom-and-bust town,” Mr. Goodrich said. “I think 2023 will be a flat or soft market, but by 2025 I think we’ll see a rebound after this economic cycle. San Francisco is still the biggest tech capital in the world and there’s plenty of innovation to come. Besides, people want city amenities and the ability to live, work and play in the same place.”
If you want to know how this might impact real estate in Marin County or interested in buying a first or second home in San Francisco, please reach out to me. As most of us know, with the changes in the economy over the last few months, the market is changing, so if you see something you’d like to visit, please Contact Me to get started - Tracy Curtis, Coldwell Banker Realty [email protected]
