Dare I say the Recession is Over for the San Francisco Real Estate Market?

Dare I say the Recession is Over for the San Francisco Real Estate Market?

Recession is officially over.

Its hard to find any bad news about local the economy these days:

  • Starting w jobs: Chamber of commerce event, Mayor Lee SF stated that unemployment rate in SF went from 9.2% to 7.8% in the last year.
  • Tech companies are hiring bodies, leasing office space, and those hires are resulting the strongest rental demand we have seen in years.
  • The sales market is responding too, especially in areas close to tech companies shuttle bus lines where demand for homes has increased significantly in the last 4 months.
  • Currently MSI (months supply of inventory) is SF is 1.5 that means = amount of time given the current pace of sales activity to sell all of the current inventory. Anything over 6 months is considered a buyers markets, indicating that we are in a deep sellers market with little “good” inventory to show for it.
  • IPO effect fueling the market activity: Facebook, Yelp, Zynga, linkedin, etc. Perception of reduction of inventory when employees of these companies realize the cash out of their option plans etc. The buyers frustration is most evident in the Mission and mission Dolores districts which are in the highest demand.
  • All this translates to support system for the rental market which has traditionally shared an inverse relationship w/the purchase market. I believe this to be so because lending restrictions have not loosens to a point where someone or couple with less than $120K in combined income can qualify for much of a loan in SF. This is a far cry from the days of “stated income” loans that enabled otherwise non qualified people to purchase real estate, which in part led to the bubble at the end of the last cycle.

One interesting personal experience was a rental I did before the weekend for a small Lower Nob Hill studio on Post St. that rented for $1250 briskly to gentleman earning $20K/month working the legal dept for a private equity fund downtown!

What happens when people of higher means come to live in areas and/or buildings that have been traditionally inhabited by people of lesser means?

It can translate that certain people who earn marginally enough money to qualify for and apartment, will find themselves feeling the competitive nature of the rental market typically experienced at the higher end of the rental spectrum.

Clearly that is what fuels the fire of the pro rent control voices in the city and you can be sure that there will be some push back from their leadership in the coming months. I recently read an article about a proposal from the left to create a tax for rent increases in excess of a certain 10% of the old base rent to dis-incentive landlords from doing buy outs. I’m not sure how much traction this has or will get but this is the sort of thing that causes a lot of excitement but doesn’t really have the legs to go anywhere.

In closing, continue to do what you are doing, make improvements upon vacancies and you will see that your units will rent at or above neighborhood averages. Rental properties located along transit corridors esp within 5-10 walk to tech company shuttles are preferred locations and will continue to command premium pricing. If you are torn on where to spend your remodel dollars btwn Mission or Outer sunset, I would spend it in the Mission.