The condo market in the Bay Area isn’t cooling anytime soon, according to a recent monthly tally from industry tracker Polaris Pacific. From San Francisco to San Jose, condo prices are on the rise, the company said in its March report.
Higher price tags persist as the supply of for-sale housing throughout the region has tightened, the lingering result of lenders pulling back on funding of the condo segment during the economic downturn of a decade ago. At that time, lenders favored financing for-rent multifamily apartment projects, which they considered less risky, said Polaris Pacific Partner Paul Zeger. With today’s economic recovery in place, there are more people looking to buy properties. But the number of condos for sale remains scarce, due to those earlier financing and building decisions.
When there’s a lack of supply, and people can afford to buy, they’re driving up the price of what’s available
These days, Zeger said, “you’ve got this huge percentage of the available inventory going for rent and a very small percentage going for sale. When there’s a lack of supply, and people can afford to buy, they’re driving up the price of what’s available.”
Currently, what’s most of interest to lenders are “ultra-luxury” condo units with superior location and high-end amenities including concierge services, Zeger said. Those residences are going for $1,500 up to $2,000 a square foot, he said, and include developments such as San Francisco’s 181 Fremont in the city’s South of Market neighborhood.
Supply has been a major issue, but greater construction costs are also contributing to the recent spike in condo prices.
Construction costs are rising, the result of a lingering labor shortage and complex development regulations, according to those in the industry. San Francisco has the second-highest development costs worldwide, only behind New York, according to a 2017 study from U.K.-based construction consultant Turner & Townsend.
Zeger explained: “Where you used to be able to make money on a $1,000-a-foot condo back in 2009, today, to make a deal pencil, you’ve really got to get $1,500 a foot or more.”
Another industry tracker, Paragon Real Estate Group of San Francisco, also noted climbing condo prices in the region.
In San Francisco, the condo median price was $1.175 million in March 2018, Paragon found, an increase of 4.4 percent from the prior year. Polaris Pacific also showed a smiliar increase, although their figures showed a median price of $1.1 million with a 3.8 percent year-over-year increase in pricing. Across the region, the prices escalated even higher. In Silicon Valley, the median price reached $810,000, a 19.8 percent rise from a year ago, while the Oakland/Emeryville market saw an 8.5 percent bump for a year ago and median pricing reaching $575,000, Polaris stated.
Even the once-troubled luxury segment is on the rebound, said Paragon. From late 2015 through mid-2016, luxury condos experienced a “significant drop” in sales due to “volatility” in the country’s financial and political markets, said Patrick Carlisle, chief market analyst at Paragon. However, he said, following the 2016 presidential election, consumer confidence returned. The luxury condo segment rallied, he said, going on “to hit new highs.”
Still, Carlisle called the ultra-luxury condo projects that are now on the market, under construction, or in the planning stages “a wildcard” whose long-term effect will take time to realize.
“San Francisco is in the midst of an unparalleled building boom for extremely costly (and gorgeous) condos, often with staggering views. One has to wonder: Are there really enough buyers for these new $3 million to $5 million-plus condos to absorb the increasing supply? Presumably, developers are confident that there are,” said Carlisle in a blog post.
Gauging current demand for these ultra-pricey condos is difficult to pinpoint, he said, since some developers do not publish sales activity figures for the segment, especially in the marketing period before construction is completed.
However, sales of these super-condos have been strongest for “newly-built projects in established, prestige neighborhoods where new construction is relatively rare, such as Pacific Heights and Russian Hill, as opposed to areas where new high-rise projects have been, and are being built, in significant numbers,” Carlisle said.
In its March report, Polaris Pacific found that in San Francisco, there were 605 unsold newly-constructed condominiums on the market, a 31.6 percent decrease compared to the same time last year. Silicon Valley reported 544 unsold new condos, down 6.8 percent. And, in Oakland/Emeryville, there were 43 unsold new condominiums on the market, compared to zero in 2015 and 2016.
In San Francisco, there were 646 resale condominium listings on the market in March, said Polaris Pacific. Silicon Valley reported 587 resale condos during the period, while Oakland/Emeryville reported 147 resale condo listings.
In the tech-heavy Silicon Valley region, the greatest increase in sales price per square foot went to low-rise condo buildings of four stories or less. As a group, those residences posted an annual sales price increase of 21.8 percent, or $756 per square foot, for the period ending February 28. High-rise condo buildings, with 13 stories or more, saw sales prices increase 19.8 percent during the past year, to $829 per square foot, according to the Polaris Pacific report.
Polaris Pacific’s Silicon Valley region includes Palo Alto, Mountain View, Redwood City, South San Francisco, Sunnyvale, Cupertino and Santa Clara.
The median resale price for Silicon Valley condos reached $810,000, which Polaris Pacific said has “surpassed its 2007 peak of $550,000 and continues to increase.”
High rises showed the biggest increase in Oakland/Emeryville, jumping 14.3 percent to $906 per square foot. Sale prices for low-rise units rose 5.7 percent, to $559 per square foot. In addition, 265 condos are currently under construction, with another 1,060 units approved for Oakland and 17 approved for Emeryville.
San Francisco’s Pacific Heights, Cow Hollow and Marina communities saw the highest median condo sales price, of $1.57 million, during the period covered in the Polaris Pacific report.
The lowest median condo prices were posted in Hunters Point and Bayview, which saw an average resale price of $744,500, the company said.
In total, there were 580 condo resales in San Francisco, marking an 8.2 percent increase from the prior year. Low-rise condo buildings posted a price of $1,204 per square foot, up 3.2 percent. High-rise resale condos reported a price of $1,330 per square foot, up 1.6 percent.