Bloomberg: “San Francisco’s Housing Mania May Finally Have Reached Its Limit”

June 17, 2016

Bloomberg: “San Francisco’s Housing Mania May Finally Have Reached Its Limit”

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Posted on June 17, 2016


After four years of crammed open houses, heated competition and dizzying price gains that sent the median cost of a home to $1.2 million, San Francisco’s real estate market is starting to lose steam.

The inventory of luxury homes is at a record high. A smaller share of deals have bidding wars. Rent growth for large and upscale apartments is softening.

While demand remains robust, real estate mania is waning in San Francisco, which has become one of the most prohibitively expensive U.S. housing markets thanks to a hiring boom for well-paid technology workers. Signs are emerging that prices may have gotten too high as job growth slows, venture-capital investmentdeclines and the stock market stays sluggish.

“It’s not the absolute feeding frenzy that we had for the last three springs before this one,” said Patrick Carlisle, chief market analyst at Paragon Real Estate Group in San Francisco. “By any definition for the rest of the world, it’s still a very, very strong market. It’s just not as crazy hot as it has been.”

Gains in home prices are plateauing, according to a Paragon report released last week. In April and May, the median price of a house rose 2 percent from a year earlier to $1.38 million, compared with a 23 percent increase in 2015, the data show. The median condominium price was $1.13 million, unchanged, after a 21 percent jump the year before.

The cooling is most notable at the high end of the market — similar to a dynamic that’s playing out in Silicon Valley as wealthy buyers and foreign investors pull back. There were a record 95 San Francisco houses on the market for at least $2.5 million at the end of April, up 42 percent from the previous year, according to Paragon. For luxury condos — those $2 million and higher — inventory climbed 44 percent to a high of 75 units. Sales of all luxury homes declined from January through May for the first time since 2010.

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A slowdown isn’t necessarily bad news for a city where the median home price has soared 66 percent in four years, according to Zillow data, fueling tension between new workers and longtime residents who have become priced out. Only 13 percent of homebuyers can afford to purchase a median-priced single-family house in San Francisco, the California Association of Realtors said in a report last month.

“It has definitely cooled a bit, which is a healthy thing,” said Gregg Nelson, co-founder of Trumark Cos., a Danville, California-based developer that has eight projects in the Bay Area. “It’s more reflective of where prices are than a lack of demand.”

Ranking Falls

San Francisco no longer ranks on a list compiled by brokerage Redfin of the 20 hottest U.S. housing markets. Denver, Seattle and Portland, Oregon, are now taking the lead, according to a June 9 report that tracks listed homes expected to sell within two weeks. The California city surpasses those markets in the percent of homes sold above the list price and the average sale-to-list price ratio.

San Francisco homebuyers faced competition on 60 percent of offers written by Redfin agents last month, down from 81 percent a year earlier and in line with the national average.

“It’s still a place where homes are snatched off the market pretty quickly,” said Nela Richardson, Redfin’s chief economist. “At the same time, the median sales price for the whole San Francisco metro is $1.2 million, and there comes a point even in San Francisco where prices outrun demand. We’re closer to that point than we’ve been in years past.”

Carmen Ho, a marketing consultant who began her search about a year ago, in April bought a house in the Mount Davidson Manor neighborhood for $1.5 million, about 18 percent more than the asking price. That’s still less than the 60 percent above-asking offer another buyer made on a home she bid on earlier in her search.

“It’s not as hot as a year ago,” said Ho, 42. “The bids are not coming in as crazy as last year. People are a bit more cautious.”

Takeover Effect

The tech industry, while still thriving, has seen job growth slow to 3.8 percent in the 12 months through April, compared with a 10 percent increase in the same period a year earlier. Venture-capital investments in Silicon Valley fell almost 20 percent in the first quarter from a year earlier to $4.9 billion, according to an Aprilreport from PricewaterhouseCoopers LLP.

The prospect of more takeovers such as Microsoft Corp.’s $26.2 billion purchase of LinkedIn Corp. may also hinder housing demand. While LinkedIn hasn’t announced a reduction in workers, broader tech consolidation could lead to job cuts that will hurt home prices and rents, said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.

“You’ll probably see more acquisitions of startups or early-stage companies,” Rosen said. “We have a lot of companies that do the same type of thing and they won’t all survive, and that’s where the job contraction will come.”

Housing demand should still be propped up by a lack of new supply relative to the area’s robust hiring in recent years, said Trumark’s Nelson. While job gains are slowing, San Francisco’s unemployment rate was 3.1 percent in April, the lowest since 2000.

“There’s not an adequate supply for the level of demand,” he said. “The prices are hindering what would otherwise be a lot more sales.”

Rental Softening

In the rental market, construction may be having more of an impact. Equity Residential, the largest publicly traded apartment landlord, on June 1 lowered its revenue forecast for the second time this year. The company, which mostly owns higher-end buildings, said new lease rates in San Francisco and New York aren’t meeting its projections because of added rental supply.

Rents are still rising across all segments, just not as fast as before, said Mark Uh, a housing data scientist at Trulia, a unit of Zillow Group Inc. While studios and one-bedrooms are in strong demand, the market is cooling for three-bedroom apartments because of runaway prices and fewer potential renters, Uh said. The median monthly rent for a one-bedroom is $3,550, while a three-bedroom costs $6,500, Trulia data show.

“I wouldn’t say that rents are cratering,” Uh said. “It’s just a matter of rents being really, really high already.”

GlobeSt.: “Pent-Up Demand Creates Buyer Opportunities”

June 1, 2016

GlobeSt.: “Pent-Up Demand Creates Buyer Opportunities”

Posted on June 1, 2016

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DUBLIN, CA—In this EXCLUSIVE, co-founder, Gregg Nelson, discusses how Trumark has adapted to the needs of today’s buyers and addresses housing demand amid a struggle to keep up.

Wallis Ranch pic

DUBLIN, CA—As has been widely reported, the cost of living in California is much higher than most other states, yet the housing demand continues to grow. Millennials driven by tech wealth are attracted to the changing landscape of home design trends and amenities.

Trumark Companies co-founder, Gregg Nelson, recently discussed market predictions of how the housing market is likely to respond to the demand amid California’s struggle to keep up in this EXCLUSIVE. Nelson tells “The millennial generation has delayed lifestyle decisions but this has resulted in pent-up demand.”

This has Trumark devising a strategy for moving beyond primary markets to seize opportunities, with projects close to transit and amenities. The Trumark project at 6582 Tassajara Rd., Wallis
Ranch, is pegged to partially fulfill those needs. Upon full buildout, Wallis Ranch will deliver 806 new homes within eight neighborhoods to a region that has recorded a significant boost in housing demand as a result of the thriving employment market less than 40 miles away.


Nelson tells “We have a new and fresh design for this type of suburban development. For example, we plan to devote a portion of the clubhouse to workspace for those workers who want to work from home yet have a communal experience.”

The 184-acre Wallis Ranch master planned development includes eight distinct neighborhoods featuring single-family detached homes, townhomes and executive homes ranging from 1,700 to 4,100 square feet. Master planner Trumark Communities has dedicated more than half of the master plan’s acreage to green space, including parks, open space and a water-quality basin to create a tranquil environment that appeals to Bay Area residents’ active lifestyles. Wallis Ranch will also include a three-acre common area featuring an edible garden, fitness center, pool, spa and barbecue area surrounded by a mile of trail systems. As drought concerns are always top of mind, drought-tolerant landscaping will be included, with entirely reclaimed water used throughout the community.

Nelson tells “The development will have a Napa-like feel with walking trails, a creek, a firepit and bocce ball court, all within a gated community along with walkability to Peet’s and BART. We are looking to create experiences that impact the living environment and finding ways to create a sense of place.”

The master planned community was acquired by Trumark Communities in 2014 through a partnership with Isles Ranch Partners LLC and Castlelake LP, and sales are slated to begin in in the second quarter of 2016. Wallis Ranch will consist of eight neighborhoods by seven builders: Riverton by KB Home, Fielding by Trumark Homes, Trestle and Driftsong by Warmington Residential, Citron by Pulte Homes, Barnwell by D.R. Horton, Bridgecroft by Emerald Homes and Ivy Oak by Taylor Morrison.