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Downtown SF condo market is crashing, with units selling at cut prices

Downtown SF condo market is crashing, with units selling at cut prices
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San Francisco’s listless post-COVID recovery is battering the downtown condo market, with owners increasingly willing to sell at a discount amid continued tech layoffs and office closings, according to a new report from the real estate brokerage Compass.

Median sales prices for condos in the greater downtown area and South of Market district, which includes Civic Center, SoMa, Mission Bay, Yerba Buena and South Beach, are down 16.5% from a year earlier, according to the report. Since December of last year, the median sales price for condos has dropped from $1.475 million to $1.23 million in those neighborhoods.

The drop in median prices in downtown neighborhoods was double that of other parts of the city. Outside of the city center, the median price for condos fell 7% in the past year, while single-family homes fell 7.5%.

While real estate brokers tend to be bullish in their marketing materials, the Compass report doesn’t sugarcoat the current situation. It concludes that the fall in demand is being driven by “a triple whammy of economic, demographic and quality of life problems.”

“I knew that market segment had weakened, but I didn’t realize the degree to which things had changed,” said Patrick Carlisle, Compass’s chief market analyst. “It was a bit of a shock.”

The problems are both macro and micro.

Nationwide, you have a declining stock market, rising interest rates, and inflation. Meanwhile, downtown San Francisco lags other cities in office occupancy, and a lack of foot traffic is crippling small businesses and making the streets feel less safe. The high-rise housing that has sprung up south of Market Street over the past 20 years was meant to serve the hundreds of thousands of workers who poured into the city each morning. With those remote jobs, the demand for housing has decreased.

“San Francisco went from being the most popular office market in the world to one of the weakest,” Carlisle said.

Two recent sales reports at Lumina, a two-tower luxury complex south of Market, show how the market has changed, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first involves a 1,791-square-foot, three-bedroom, three-bathroom unit on the 32nd floor of the tower at 338 Main St. That unit sold for $3.25 million in May 2016 and then traded again in August 2019 for $3.5 million. In September of this year it went on sale again with a listed price of $3.15 million, before finally selling in November for $2.68 million, a 23.4% drop from 2019.

Meanwhile, a two-bedroom unit in the same tower is trading for $2.6 million, which, if sold at that price, would represent a 21% decrease from its 2016 price of $3.295 million.

While the current market presents an opportunity for buyers, the increase in interest rates to a maximum of 20 years offsets any savings that can be gained through the lower price point, Carlisle said. But for buyers with cash for a down payment, or those willing to gamble that they’ll be able to refinance at a lower interest rate in the future, there are opportunities.

“This is a good time for buyers to trade extremely aggressively,” he said. “If you see a unit you like, just ignore the asking price and decide how much you’re willing to pay for it. There are many sellers who just want to get on with it. If they can close a deal, they will, even if it falls well short of expectations.”

Real estate agent Kevin Birmingham of Park North Real Estate said the report is consistent with what he is seeing in the city. He just sold a condo in the Twin Peaks area that marketed for $695,000. It closed at $680,000. The seller expected to get $800,000.

As such, many prospective sellers are looking to rent out their units. “Listings are pulling out and going directly to the rental market,” Birmingham said.

Gregg Lynn of Sotheby’s International Realty, which focuses on the luxury condo market, said the optimism of 2021, when San Franciscans got vaccinated and began to feel comfortable in crowds again, turned into uncertainty.

Some families who shopped before the pandemic hoping to split their time between San Francisco and wine country or Tahoe have found they don’t have much of a reason to come to the city. Others bought downtown condos to be close to their children and grandchildren, only to have their children leave town.

“Many of our clients are not using their condos as much as they thought,” he said.

JK Dineen is a staff writer for the San Francisco Chronicle. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen

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