Economist sees “irrevocably changed” SF housing market

Remote work and “social cohesion problems” incentivize people to leave the city

(Photo Illustration by Steven Dilakian for The Real Deal with Getty Images)
(Photo Illustration by Steven Dilakian for The Real Deal with Getty Images)

“Let’s see what happens after Labor Day” has been the comforting refrain from San Francisco residential agents all summer long, as sales and prices dropped and even the luxury market saw multi-million price chops. But Redfin Chief Economist Daryl Fairweather says agents looking for a fast-paced fall are unlikely to find it as long as remote work remains at the forefront for tech and other highly paid professional positions.

“Remote work has irrevocably changed the housing market in San Francisco,” she said.

A recent Redfin report showed that the Bay Area had the biggest declines in home prices and sales volume among U.S. metro markets, with San Francisco and Oakland the only places in the country to post a year-over-year decrease in prices. San Francisco was down 6.5 percent and Oakland down 1.5 percent between July 2021 and 2022, according to the report.

Fairweather said both the SF and New York markets were impacted greatly by the pandemic, but New York-based companies have demanded a return to work in far greater numbers than in San Francisco. The finance capital now has a much stronger residential market because of that, she added.

In San Francisco, the resistance of tech employees to giving up remote work, and the seeming inability of companies to compel their workers to come back into the office, means that buyers no longer need to “tolerate” the area’s high prices while “social cohesion problems” such as homelessness, crime and other issues she attributed to the region’s stark income inequalities make the city a less livable place to call home.

Frank Nolan (Vanguard Properties)

Frank Nolan (Vanguard Properties)

“People just aren’t wanting to put up with it,” she said, predicting that nothing on the horizon would add a jolt of energy to the market, though a reinvigoration of tech stocks would help.

San Francisco agents say that they believe the fall may still mark a change from the sleepy summer, with people back from their travels, more listings coming to market and “pent up demand” among buyers who still face a relative lack of inventory on the single-family front.

Some sellers who aren’t getting the prices they want are pulling their homes from the market and renting them out instead, said Frank Nolan of Vanguard Properties. That is keeping inventory low enough to stop prices from dropping much further, he said.

“People don’t like to lose money,” Nolan said, adding that even sellers with no experience as landlords were taking note of the city’s revived rental market and turning their former homes into rentals in an effort to wait out the down market.

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Joseph Lucier (Sotheby's International Realty)

Joseph Lucier (Sotheby’s International Realty)

That trend is happening across the country, according to Redfin’s Fairweather, as the market cools nationwide and many of the sellers are locked into record-low interest rates. Low mortgage payments allow them to adopt a wait-and-see strategy, with renters covering their monthly carrying costs in the meantime, she said.

Joseph Lucier of Sotheby’s International Realty said the San Francisco market was experiencing “finger in the air conditions” and that agents would “need to assess in real time which way buyer sentiment is blowing.”

Lucier said via email that he still expects a “healthy” number of new listings this fall but that “compared with last year’s bumper crop, volume this fall will be lower.”

He didn’t see any hesitation among his buyers, who are primarily focused on single-family homes in the northern neighborhoods, though he said the city’s struggling condo market still hasn’t “found its floor.” He said many are “eager” to make an offer on “the right house” this fall, but he expects buyers to be extra price-sensitive given the volatile financial markets.

Daryl Fairweather (Redfin)

Daryl Fairweather (Redfin)

“B properties cannot be priced as A properties like they were in 2021,” he said. “The market will be less forgiving this fall if a home is inaccurately priced.”

Fairweather said that lower prices alone cannot stop the slide in sales volume, and that San Francisco will need to confront its livability issues and invest in “missing middle”-income housing, transit and public schools if it hopes to attract buyers to whatever its next incarnation might be.

“I don’t think it’s about prices coming down,” she said. “It’s about San Francisco finding its identity post remote work.”

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