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After intense growth during the Covid-19 pandemic, San Francisco’s residential real estate market is starting to show signs of slipping, according to a report from Compass released Monday.

Rising interest rates, the volatile stock market and record-high home prices have stopped some buyers in their tracks. That’s translated into less competition for new listings, and, ultimately, fewer deals. In April, the number of listings in San Francisco going into contract dropped to about 625, down from roughly 725 contracts signed in March and more than 750 in April 2021, the data showed. Condos saw the biggest drop off in transactions. 

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“Less expensive homes—and possibly second-home markets—may initially be more affected by rising interest rates,” Patrick Carlisle, chief market analyst at Compass in the San Francisco Bay Area, said in the report. “In San Francisco, the condo market seems to be softening more quickly than the house market. Affluent buyers tend to be deeply influenced by sustained changes in financial markets and economic news.”

The number of closed sales ticked down to around 640 in April, from about 650 in March, the report said. Those sales generally reflect homes that went into contract the previous month. Year over year, sales were “well down” from April 2021, when more than 750 residences sold. 

At the upper end of the market, there were nearly 70 sales of homes priced at $3 million or more in April, compared to roughly 63 in the same time period last year, the data showed. More than 70 sales of condos prices at $2 million-plus were recorded in April, up from around 63 in April 2021. 

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“April sales mostly reflect buyers who locked in mortgage rates before the big late-March/April jumps, and the housing market is beginning to show preliminary reactions to the 69% jump in interest rates and double-digit declines in stock markets year to date,” Mr. Carlisle noted in the report. 

Meanwhile, prices remain elevated—for now. The rolling median price of a single-family home over the last three months was up 15% in April, compared to the same time in 2021, according the report. In addition, they’ve risen 25% since 2020. Inventory also remains constricted, with less than two months of supply available for single-family homes and about three-and-a-half months’ worth of condos.

“Absent an economic disaster event, major shifts in market conditions, especially from a superheated market, often begin very gradually,” Mr. Carlisle continued. “For example, an initial shift to a new listing receiving two, three or four offers instead of 10 to 12 might not initially affect sales or sales prices, but if that changes to receiving one offer (no multiple-offer overbidding) or no offers, the supply and demand dynamics between buyer and seller start to shift quickly.”

Article source: https://www.mansionglobal.com/articles/san-francisco-market-shows-early-indicators-of-slowdown-01652120612

“We have re-examined our assumptions over and over. We are applying actual construction costs based upon our knowledge of the area,” the letter states. “The conclusion is that the project, as we have analyzed it in its current form, does not work for any responsible development entity.”

In the letter, Concord First Partners asks for a 90-day extension of the exclusive negotiating agreement, which is set to expire on May 26.

In addition, the developer wants an extra year in which to get the project approved, which would move that date from May 2024 to May 2025.

In addition, the development partnership — led by Albert Seeno Jr., Discovery Builders President Louis Parsons, and well-known Oakland builder Phil Tagami — is asking the city to guarantee that it will be reimbursed for some third-party costs should the City Council eventually reject their proposal. The reimbursement would only cover pre-development work that is used by subsequent developers.

They are also asking that the “development and disposition agreement” — which outlines what the developer will pay for the land and when it will be transferred by the Navy — be shifted from the end of the approval process to the beginning.

The dispute comes more than three years after the previous developers, Lennar and FivePoint, walked away from the project after they were unable to come to terms with the Contra Costa County Building Trades Council. That plan had called for 13,000 new homes, 2,700 acres of parks and 6 million square feet of commercial and academic space.

In October, the Concord City Council picked the Seeno group over two other builders, one of which was Brookfield Properties, among the largest developers in the world.

So far, the Concord First Partners request has not gone over well with Concord city officials. A report to the Concord City Council economic development staff recommends that a one-month extension on the exclusive negotiating agreement be granted, but that the rest of the request be rejected.

In particular, guaranteeing that the developer be reimbursed for costs accrued during the entitlements — engineering, architecture, transportation studies — could leave the city on the hook for millions, said Guy Bjerke, Concord’s director of economic development and base reuse.

“That is asking for long-term trouble,” Bjerke said in an interview. “They are asking for an enforceable right to the property before they will spend any money on the specific plan or the environmental impact report.

“We understand they are looking to limit their political and financial risks, but we have analyzed it and come to the conclusion that it would not be in the best interest of the Local Reuse Authority.”

In winning City Council approval, the Concord First group signed a “project labor agreement” with the building trades, something Lennar had been unwilling to do. That allowed it to beat out Brookfield Properties, which is behind mega Bay Area projects like Pier 70, 5M and the Stonestown Galleria redevelopment, all of which are in San Francisco.

At the time Lennar quit the project, it had spent $15 million on its plan, and the city had shelled out about $14 million.

In a statement Wednesday afternoon, Concord First Partners said, “All we’re asking for is an agreement that confirms Concord First Partners as the Master Developer prior to our making a material financial investment into this opportunity.

“We are ready to invest millions and millions of dollars and to devote multiple years studying and preparing environmental and development plans for this project,” the group said.

Matt Regan, senior vice president of policy for the business advocacy group Bay Area Council, called the disagreement between the developer and the reuse agency “one massive mess.”

“We are probably getting close to the time when we have to ask the question, ‘Is the city of Concord capable of getting this project done?’” Regan said. “We are at the point where we are on our third developer, tens of millions of dollars have been spent, and we have made zero progress. It’s becoming a bit of a laughingstock.”

The lack of progress on the redevelopment is particularly upsetting because the site represents “such a phenomenal opportunity,” he said. “The East Bay desperately needs the jobs and housing. We can’t afford to stumble along.”

The futility and hypocrisy simply became too much, he said in a series of phone interviews from his new home on the East Coast.

“It’s a beautiful city,” he said about San Francisco. “But it’s fraudulent. We are a fraudulent city.”

That’s a big charge for a little city, but he has a point. San Francisco and the wider Bay Area pride themselves on being progressive, welcoming, equitable and compassionate, but fail to live up to those ideals.

Lerner is the first to admit his family has it better than many, but they still couldn’t make the Bay Area work.

Lerner for three years led At the Crossroads, a small nonprofit that seeks to help homeless youth build successful lives. His husband, a Black man, spent his career as a paramedic before becoming a real estate agent for more money and less stress. They adopted a biracial son, now 13, out of foster care.

They should be the sort of family San Francisco and the wider Bay Area would like to keep and help thrive, but they didn’t feel that way.

“Everything was a battle,” Lerner said.

When they outgrew their tiny Oakland home, they started house-hunting and found they could maybe — even with Lerner’s $135,000 salary — buy a house in Concord, nowhere near his job in San Francisco.

They couldn’t find a consistent therapist or solid educational support for their son, who has special needs. They wondered why their high property taxes paid for “systems so woeful,” Lerner said. And when they spent time in San Francisco, Lerner’s husband asked where all the Black people were.

And as the middle class gets squeezed out, the city’s homelessness crisis grows worse, the income inequality gap grows wider, and wealthy neighborhoods get to block homeless services and affordable housing, leaving the Tenderloin and South of Market to bear the brunt of both. People sleep in tents without access to bathrooms and water fountains near multimillion-dollar penthouses. Homeless people who do move inside often deal with crumbling buildings racked with cockroaches and violence. And this is progressive?

“Being progressive means progress, reform, seeking greater economic and social justice,” Lerner said. “Our city has been the antithesis to this in many ways. Leaders ultimately have to take responsibility for this reality.”

Lerner said he joined Mayor London Breed on a Zoom call for homeless service providers early in the pandemic and voiced his concerns about underpaid nonprofit workers. Lerner said he asked the mayor to describe her vision for addressing the city’s lack of affordability.

“Her response was basically that we are a city with very limited land, and at the end of the day, it’s just going to be an expensive city,” he said.

Jeff Cretan, a spokesperson for Breed, said she has consistently pushed for more housing to bring prices down, but has often been stymied by the Board of Supervisors. She’s now backing a charter amendment intended for the November ballot that would streamline and hasten the building of 100% affordable housing complexes, teacher housing and projects that include 15% more below-market rate units than currently required. The majority of supervisors repeatedly opposed Breed’s attempt to get the same policies passed through legislation.

The current pace of housing production of all types is pathetic. This week, six years after a developer agreed to donate 180 Jones St. to the city as part of a bigger housing deal, the Board of Supervisors approved building 70 affordable units there. While construction should start soon, it will probably be at least eight years from the original deal being struck to tenants moving in.

Meanwhile, the city’s cost of living soars, and the frontline workers charged with solving San Francisco’s biggest crises — homelessness, drug addiction and untreated mental illness — are vastly underpaid.

One of San Francisco’s most glaring inequities, as Lerner pointed out, is that City Hall gives its employees healthy salaries and generous benefits and pensions while contracting with nonprofits to do the on-the-ground work for much less. Lerner gave his private donors the hard sell and was able to raise his employees’ salaries somewhat, but other nonprofits that rely more on city funding can’t do that.

I wrote in 2018 about Homeless Outreach Team workers making so little, they live paycheck to paycheck themselves and quickly burn out. Back then, the entry level hourly rate was $23.19. Four years later, the city has raised that pay by a whopping $1.29. More experienced outreach workers, to the city’s credit, can earn up to $33.72 per hour. There should be 77 outreach workers, but there are currently 11 vacancies.

Emily Cohen, a spokesperson for the city’s Department of Homelessness and Supportive Housing, said the department is undergoing “a great deal of equity analysis” about pay in the nonprofit sector.

Vitka Eisen, president and CEO of HealthRight 360, which provides care to homeless people and those addicted to drugs, said the pandemic-fueled labor shortage coupled with the city’s low pay have made hiring harder than ever. Her organization has a 35% vacancy rate in San Francisco, meaning treatment beds go empty because there’s nobody to staff them. She said someone with the same qualifications in mental health or drug treatment can find a city job for 45% more pay. In fact, the city just hired more than 200 behavioral health workers after cutting through red tape, which shows it can staff some of these jobs.

Joe Wilson, executive director of Hospitality House, which provides shelter and services to homeless people, said his staffers earn around $45,000 to $55,000 a year and commute from as far as Stockton and Vacaville. He agreed adamantly with Lerner’s assessment of San Francisco failing to live up to its progressive ideals.

“The reputation doesn’t align with the reality,” he said.

A new controller’s report showed that San Francisco spends $1.2 billion on 600 nonprofit service providers annually to work on homelessness, drug treatment and mental health — but the low wages mean high turnover and a lack of consistency for clients. Many of the most challenging positions pay less than $20 an hour, the report found.

Lerner said the city is telling its nonprofit workers “they don’t deserve to own their own homes, they don’t deserve to live in the city, and they don’t deserve to take a nice vacation once a year.”

It would seem that an audit of the nonprofits could find ways to streamline their efforts and pay their workers more, but a long-promised audit from Breed still isn’t done.

The whole picture is enough to make many people throw up their hands in frustration and leave San Francisco and its mind-boggling hypocrisy behind them. But Lerner, for one, hopes to come back when his son has completed high school.

“Maybe San Francisco can return to some semblance of itself over the next few years,” he said. “It’s home.”

Put another way: More than half of the overall growth in house prices in the pandemic can be attributed to demand spurred by remote work, according to John Mondragon, an economist at the Federal Reserve Bank of San Francisco, and Johannes Wieland, an economics professor at UC San Diego.

The research, which controlled for migration during COVID, found that U.S. metro areas that had the highest shares of remote workers during the pandemic also saw the highest increases in home prices.

The paper also found the effects of demand driven by remote work had an “almost identical” impact on the rise in rent prices.

Those “robust” relationships imply “a shift in demand for housing across the board,” Mondragon told The Chronicle, as many pandemic home buyers and renters sought to upgrade to more spacious and pricier apartments and homes to support their telework lifestyles.

“It’s really a simple story, which is, as people are spending more time at home, they’re going to require a lot more space at home, and they’re going to be willing to pay for that,” Mondragon said.

In the Bay Area and California, home prices have continued to soar because of increased demand from home buyers and low inventory. The historic rise in home prices has made home ownership increasingly less affordable and has spurred bidding wars that have made home sales hundreds of thousands of dollars above listing price a common occurrence.

California’s median home price reached $884,890 in April, according to the California Association of Realtors, surpassing a record set in the month prior. The Bay Area’s median home price surpassed $1.5 million, setting another record for the region.

Even as the Bay Area experienced huge increases in outmigration in the last two years, the spike in remote work “was so large that ultimately house prices grew by 21%,” Mondragon said.

The paper also showed remote work has had an opposite effect on commercial rent prices. Commercial rents generally declined in areas with higher rates of teleworkers where demand for office space cooled.

The paper adds to a growing body of literature detailing the significant societal impacts of remote work during the pandemic across the Bay Area and U.S.

Outmigration from city cores steered many home buyers to surrounding suburbs further away from their jobs. It also altered transportation patterns, reducing demand for public transit.

Nicholas Bloom, an economics professor at Stanford and an expert in remote-work trends, said in an email that the paper “suggests that the current housing surge is less of a bubble than we might think, since (work from home) rather than low interest rates are driving this.”

Remote and hybrid work are also likely to continue to fuel outmigration to suburbs if employees don’t have to stay close to where they work. Places such as the East Bay, North Bay and Central Valley “have seen and will continue to see strong demand from tech and finance workers moving out from (San Francisco) and central Bay Area,” Bloom said.

Many Bay Area employers, such as Apple, have yet to fully implement their new work schedules, and some cities, such as San Francisco, expect significant percentages of office workers will remain teleworking, denting future business tax revenue.

The paper, which was published independently of the Federal Reserve Bank system, concludes that future housing costs “may depend critically” on the staying power of remote work, as well.

“If remote work reverses, then there may be a general reversal in housing demand and potentially housing prices,” the authors wrote. “If remote work persists, we may expect important repercussions as increased housing costs feed into inflation and so affect the response of monetary policy.”

Then the housekeeper and single mother of teenage twins realized it would be the third time her family had been uprooted in a two-year blur of unemployment red tape and searching for a stable, affordable Bay Area home.

“Here we are again,” Mathis said. “I don’t want to have to go through the eviction process, but I don’t have a choice.”

Mathis was one of hundreds of thousands of California workers ensnared by pandemic unemployment delays at the state Employment Development Department (EDD) and its contractors. At first, she was able to dig herself out of the bureaucratic mess, restart her cleaning business and eke out enough last May for a two-bedroom in the tiny Contra Costa County town of Crockett.

But now, in a state emerging from the pandemic amid intense economic inequality, she — along with many others still dealing with unemployment issues — worry whether efforts to rebuild will be derailed by housing that seems further out of reach than ever.

It’s a cycle that Daniela Urban, executive director of Sacramento’s Center for Workers’ Rights, has seen play out many times. “Housing was the No. 1 thing,” she said, that jobless workers have worried about while contesting COVID-era unemployment claims.

“As the pandemic proceeded, we were dealing with more and more homeless individuals,” Urban said. “The best case scenarios were the folks who moved in with relatives, sometimes out of state or out of country. But it was folks living in cars, living on the street.”

Mathis considered herself lucky to be in the former group.

Fishing for fraud

It wasn’t until about a month after pandemic lockdowns began that federal officials created an emergency program for self-employed workers like Mathis to even apply for unemployment. With her income from housekeeping and other odd jobs vaporized, she said the family had already gotten an eviction notice at their Rodeo home of four years.

She moved into her parents’ Vacaville garage, and her twins split their grandparents’ guest room. The setup was far from ideal, but it became a lifeline during another round of unemployment limbo.

“We were homeless, basically,” Mathis recalled. “But we had a roof over our head.”

In December 2020, Mathis said her payments suddenly stopped for about five months as the state scrambled to crack down on what is now estimated at $20 billion in benefit fraud.

Mathis was one of thousands of people stuck trying to verify her identity with the EDD after an unprecedented 14 million jobless claims flooded the agency in the early months of the pandemic. Panic about fraud left desperate workers to weather account freezes, hours-long customer service waits or negative benefit balances.

While there is no official estimate for how many California unemployment claimants have lost housing as a result payment issues, the casualties included a former San Francisco tech office kitchen staffer who, by late 2020, was sleeping in a friend’s car in West Oakland after his unemployment debit card stopped working and he was forced out of his nearby apartment. Or a Disneyland candymaker left homeless with her son while she fought to recoup more than $12,000 in fraudulent charges on her unemployment debit card.

Enough plaintiffs expressed concern about losing their homes in a class-action lawsuit over unemployment debit card contractor Bank of America’s role in the crisis that a San Francisco federal judge cited the issue in a May 2021 preliminary order.

“The harm being suffered by the class members is irreparable,” U.S. District Judge Vince Chhabria wrote. “Continued denial of these benefits will seriously hinder the ability of many class members to feed their families and keep a roof over their heads.”

At the time of the lawsuit, bank representatives blamed the state’s own unemployment processing for much of the fraud confusion, and said they had hired more staff to help repay claimants who lost funds.

By this time last year, Mathis was hoping to put her unemployment ordeal behind her. She had received a check from the state to cover missed payments and found the quirky old house in Crockett — “the last town before you cross the bridge,” she said, from Contra Costa to Solano County. She went to John Swett High School there, where her 17-year-old twins will next year be seniors.

Many prospective landlords had asked to verify that her monthly income at least three times the rent — often $6,000 or more, far beyond her income — so Mathis was grateful when the owner of a local hardware store offered her a lease with no such requirement.

But everything changed again three weeks ago.

Risky road ahead

Mathis found the typed, one-page notice on the door just before Mother’s Day. Maintaining the property had become “too demanding” while preparing for retirement, landlord Gene Pedrotti explained in the 60-day notice.

In a phone interview, Pedrotti said the pandemic left him with his own challenges as a small business owner working 70- or 80-hour weeks while short staffed. He still owns a nearby mobile home park and emphasized making multiple large contributions to groups working to alleviate the housing crisis, but Pedrotti said he plans to sell the house in Crockett as he and his husband aim to split their time between Washington state and the Bay Area.

“No matter who the tenant would be, I have to face this,” said Pedrotti, who has owned the home for about 25 years. “I can’t do this anymore.”

Though precise numbers are hard to come by, landlord advocates have warned more mom and pop owners are looking to sell in a record-breaking pandemic real estate market and get out of the Bay Area rental business.

The timing couldn’t be worse for workers still trying to recover from job loss, since advocates like Urban fear the state is on the cusp of another wave of financial turmoil linked to unemployment. A March 2021 state audit identified “nearly 1.7 million Californians at risk of needing to repay benefits,” and some workers have already received letters requesting additional documentation or threatening wage garnishment.

The class-action unemployment lawsuit against Bank of America is also ongoing after the bank unsuccessfully attempted to pull out of its EDD debit card contract last year. Since then, the bank has rolled out unemployment cards with more security measures, which EDD Director Rita Saenz said in a statement was one of several reforms to “help many Californians get benefits faster.”

Attorneys for those still navigating the process warn that some workers continue to fall through the cracks.

“There are still people who are being wrongly deprived of benefits, and there are still people whose housing security is being affected by these policies,” said Brian Danitz, a Burlingame-based partner at Cotchett, Pitre McCarthy. “Every week I receive several inquiries.”

As the long tail of California’s unemployment turmoil continues, Mathis is back to spending time between her cleaning shifts scrolling Zillow for new rentals. It seems like there are fewer options in her $2,200-a-month price range.

She’s started a GoFundMe to cover moving costs for the third time in two years — one last chance, Mathis hopes, to contain the fallout from a pandemic that refuses to end.

“My first thought is always my kids,” she said. “I’m always afraid that I’m damaging them for their future.”