Earlier this month, there was an invite-only reception at Vida, a condominium project being built next to the New Mission Theater.
As Jose Roberto Hernandez’s trio played, 250 potential buyers sipped on cans of Modelo and ate tapas provided by the Mission Language and Vocational School. Two days later, 20 units were in contract – and the building won’t even open until January.
“It was a madhouse,” said Matt Fuller of Zephyr Real Estate.
If that sounds reminiscent of late 2007, when buyers lined up outside One Rincon Hill until the wee hours, it is. Median condo prices in San Francisco are now above $830,000, about 8.2 percent higher than the peak reached right before the economic crash in early 2008. The latest Standard Poor’s/Case-Shilling home sales price index shows that San Francisco prices have jumped 23 percent in the past year.
Units that seemed terminally underwater are now high and dry. At One Rincon Hill, a unit sold recently for $815,000, a 15 percent profit over its early 2008 purchase price. The seller’s broker, Leslie Bauer of Sotheby’s International, said, “Even a year ago it would have sold for about $650,000.”
Another One Rincon Hill unit traded in February for $1.14 million – 31 percent over its 2011 price of $870,000.
The frothiness is being whipped up by a combination of the robust tech economy, low interest rates and a supply of new condos that is at an all-time low. San Francisco has fewer than 100 new units on the market, compared with the average of 1,000 units on the market at any given time between 1999 and 2009.
A year ago four condo projects hit the market, totaling about 300 units: Linea at 1998 Market St., Marlow at 1800 Van Ness Ave., Blanc at 1080 Sutter St. and the 300 Ivy St. development. Marlow, Blanc and 300 Ivy are sold out, while Linea has about a dozen units left.
‘The new normal’
The average price per square foot at both 300 Ivy and Marlow topped $1,000.
“The new normal for new construction is $1,000 a square foot, and it goes up from there,” said Chris Foley, a principal with Polaris Pacific, which is handling sales for Vida, Blanc, Linea and Marlow. “Vida will sell out before construction is finished.”
Daniel Kennedy, who moved into his new one-bedroom condo at Marlow this week with his partner, Alek Chainam, knew what he was getting into. After all Kennedy, who works in marketing for a tech company, had sold his previous unit near the Caltrain station about a year ago.
“I knew the market would be tight, but it was worse than I thought,” he said. “It seemed like every month it was getting tighter.”
Hesitation costs buyer
Kennedy was originally the first buyer in contract at Marlow, but he decided to wait and look around. The hesitation cost him: Marlow’s prices rose 17 percent from the start of construction to the closeout.
“Of course I ended up having to pay more because I came in later.”
And unlike in 2007, when buyers got away with 5 percent down, postcrisis banking regulations are stringent: You better have a job, strong credit and 20 percent cash to plunk down.
Many buyers, however, are putting down even more. At Marlow, where the price per square foot averaged $1,060, 28 percent of buyers paid all cash.
“The buyer profile at Marlow was the strongest I have ever seen,” said Jason Chapin, a retail sales supervisor for Wells Fargo Home Mortgage, who supervised loans on the project. “People with plenty of cash, excellent income and great credit.”
Cash buyers “set the tone for the market, even in a retail market, because they are hard to compete with,” Chapin said.
“There is a lot of cash in the Bay Area,” he added. “The IPOs in tech and biotech are back. We see a lot of young people with more liquidity than we have seen in the past.”
But it can be a frustrating time to be a buyer. Some would-be buyers end up scoffing at the going rate of $800,000 for an 800-square-foot condo, even if they can afford to buy it.
“You are starting to hear about more people getting buyer’s remorse and falling out of contract after deciding the market is overpriced,” Bauer said.
But the alternative – the rental market – is no picnic. Rents in the city’s more fashionable neighborhoods have topped $4.50 a square foot.
Trying to add housing
Builders like Sean Sullivan, president of JS Sullivan Development, are doing what they can to add housing. Sullivan just completed Blanc and has two projects under construction: 1515, a 45-unit project at 15th Street and South Van Ness Avenue, and 870 Harrison St., a 26-unit building to open in October. Sullivan said Blanc exceeded expectations and, surprisingly, attracted a fair number of families with children to a somewhat edgy location.
Sullivan said he sees the market leveling off but not falling. “It will cool off – this rate of increase in valuation is unsustainable,” he said.
“The current pipeline is all under construction – what is going to happen in 36 months when all those high-rises under construction are sold out? We are going to have inventory issues for years to come.”
The likelihood that interest rates will jump this year is creating an additional incentive for buyers and sellers alike. The current rate of 4.30 percent on a 30-year fixed loan means that monthly payment on a $500,000 loan is about $2,500 a month – compared with $3,000 a month in December 2007, when rates were at 6.10 percent.
J.K. Dineen is a freelance writer. E-mail: firstname.lastname@example.org