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Good for Sellers: Bad for Buyers

February 2013

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Good and Bad

Last February’s Pulse of the Market Have we Hit Bottom? stated that the San Francisco residential market had hit bottom. Results for 2012 confirm that. It is worth a re-read.

 

Where Do We Go From Here?

 The next five years will be good for sellers and bad for buyers. San Francisco is on the cusp of another (strong) leg up in residential prices.

 

Jones Lang LaSalle, a major commercial real estate company, held an event on January 30th at which they forecast a strong upbeat outlook for the city. The residential segment is directly related. A few items caught my attention:

Boston Properties is so bullish on the future of San Francisco that it is investing more than twice as much capital in the city’s office market as it is in the rest of the country combined. (Editor’s note: WOW!)

San Francisco is among the top seven cities worldwide benefiting from the three forces of urbanization, globalization, and modernization.

San Francisco has more than three times the tech start-ups as London and four times the number in New York City.

The CEO of Rocket Space, a shared workspace company, said he was inundated with calls from companies worldwide looking to get a window into the San Francisco market. “We get 25 applications a week from companies all over the world wanting to put small teams here. These are large multinational companies, and they want an innovation team in San Francisco of 10 to 15 people.”

 

 For each new software designer hired by Twitter in San Francisco, there are five new job openings for baristas, personal trainers, doctors, and taxi drivers in the community. Most sectors have a multiplier effect, but the innovative sector has the largest multiplier effect of all: about three times larger than manufacturing.

 

So?

 So hang onto your hat. We saw 2012 averages prices escalate 11.4 % for condominiums and 16.6 % for single-family homes. It was a bad year for buyers, many of whom lost out in multiple offer competitions.

By the way, the average annual price appreciation during the period 1997 to 2000 was 19% for both condominiums and single-family homes. During the period 2003 to 2007, it was 8% for condominiums and 10% for single-family homes. If , and I know this is a big if, there is 8%/year appreciation for the next five years, a $800,000 property bought in 2013 will sell for more than $1.1 million in 2018. (Editor’s note: Good Grief!)

My prediction for the next five years - it is going to be good for sellers and bad for buyers, and by the way, I usually don’t make predictions. Contact me if I can help.

 

 

 

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