Read the news on real estate, and you'll keep hearing that it's a seller's market across the country. Low inventory has sparked a huge uptick in buyer demand, giving sellers the upper hand to command high asking prices for their homes. The fact that mortgage rates have reached historic lows is also fueling buyers' interest, which, again, is working to sellers' advantage.
But while the U.S. housing market as a whole may be hot, there's an exception to that rule: San Francisco. Real estate agents in San Francisco are struggling to move condos off the market as inventory is up and buyers don't seem to be biting. They're getting so desperate, in fact, that they're starting to offer huge incentives to entice buyers to make offers. But should investment property owners in San Francisco be worried?
A near-term but troubling trend
Active listings for San Francisco condos are up 114% year over year, and while it's not unusual for there to be more available condos than single-family homes, there are currently two condo listings for every single-family home available on the market. As such, the average price per square foot for condos has decreased 4% since 2019, and the number of buyers outbidding each other over asking prices is declining.
San Francisco's condo market is slowly but surely creeping toward buyer's-market territory, defined as eight months' worth of inventory or more available. Right now, the city is at six months' worth.
It's for these reasons that real estate agents are getting creative and coming up with different incentives to lure in buyers. Some are offering gift cards for home furnishings. Others are offering interior design consults. These perks are eating into real estate agents' profits, but it's a sacrifice they need to make to close deals.
Why the lack of buyer demand? Much of it has to do with the coronavirus pandemic and the many ways it's changed so many people's lifestyles.
Right now, people aren't willing to pay a premium for a condo with the convenience of being work- or restaurant-adjacent, since so many are doing their jobs remotely and hunkering down at home rather than taking advantage of local nightlife. And because so many people have been cooped up at home for so long, condos just don't hold a lot of appeal right now. Rather, buyers are looking for more space -- and they're more likely to find that with single-family homes.
Should condo owners and investors in San Francisco be concerned?
The situation for condo owners and investors isn't great right now, but those who aren't desperate to sell in the near term have less to stress about. The reason? Once the pandemic ends and life returns to normal, condos in San Francisco's most thriving neighborhoods are likely to once again seem enticing.
Right now, there's simply no nightlife to be in the middle of. Once that changes, buyers are apt to start clamoring for condos in prime locations, especially if mortgage rates stay low, which is likely to be the case well into 2021 and quite possibly several years beyond. As such, those who own condos as investment properties shouldn't stress today's market conditions if they're not actually rushing to sell.
Incidentally, San Francisco isn't the only city with excess inventory. Manhattan, too, has seen apartment sales tumble as city dwellers flock to the suburbs in search of more square footage. But once the pandemic wraps up, buyers will once again seek out homes in the middle of all the action -- in both New York City as well as San Francisco. As such, the current situation is nothing to panic over. It does, however, offer prime opportunities for buyers to snatch up city real estate -- if not at a discount then with some serious incentives to enjoy.