First, remember that San Francisco homes have had the same annualized 6-percent growth rate since the Regan administration. Second, supply is incredibly low: 2016 saw 5,500 new housing units hit the market (including rental and purchase) but 2017 only saw 1,988 new units come online and there are only 3,400 units under construction currently. Then it should come as no surprise that values continued to grow steadily despite concerns about what a Trump administration could do and creeping interest rate rises. Take a look at numbers below along with our observations and thoughts about what we’ve seen and what may see going into 2018.
As we predicted last year, the biggest gains in median home values took place near SF State and the Excelsior. This is thanks to more value-minded buyers being pushed out of neighborhoods like the Sunset, Mission Terrace, Glen Park and Bernal Heights (not to mention Noe Valley, the Richmond or Potrero Hill) into District 3 Central areas like Eureka and Noe Valley continue to be popular as do other areas where folks can get 101/280 access easily so they can commute to jobs in Silicon Valley.
The Whole Foods effect: With the addition of palm trees, new street lighting and repaving, Ocean Avenue (which straddles District 3 and 4) has itself been transformed and updated. Throw in a Whole Foods and the massive new rental inventory from Avalon it’s no wonder that the area’s natural proximity to 280, BART and MUNI were finally discovered.
Construction here is just emblematic of the District’s long-term growth plan. The massive Park Merced complex (those buildings behind Stonestown Mall, off of 19th Avenue as you go south out of the City) is already being torn down as part of a $15 billion, 15-year redevelopment project that’s gotten underway. The Park Merced project is the big game in town as its 40,000 new units make up the bulk of the total of 60,000 entitled units in the City’s entire new pipeline.
Warning Will Robinson. Westwood Park (District 4) showed extraordinary strength in 2017. As demographic turnover continues in the area, which is known for very large, detached and charismatic houses that channel a bit of Southern California, folks looking to renovate houses into forever homes should beware of a few blocks of Plymouth Avenue where backyards abut City College’s parking lot. A bit of SoCal’s pesky suburban sprawl is on the way to the area in the form of 600-800 rental units from (of course) Avalon. The large dirt berm that separates the backyards of these houses on Plymouth from the parking lot will be bulldozed away. Construction is slated to take at least 2 years but who knows how many years property values will be impacted.
People will get pickier. For example, the coveted 3-bedrooms-on-the-same-level layout will be at the top of people’s wish lists. Folks will want to live on the odd-side of a numbered avenue (to get views), developed in-law spaces that are flexible in use (income unit versus legitimate in-law use to an au pair unit) and finish level for flipped houses will be even more important going forward to motivate increasingly discerning buyers as prices move up (and up).
As this cycle’s prosperity has moved from north to south and east to west the question that some folks may wonder is if the Central or Outer Parkside. Our guess is that while price strength may come to the area, the Parkside’s housing stock — especially the Outer Parkside — is smaller and denser with far fewer trees. Value-added homes will have to feature smarter design and higher-end finishes to get higher dollar-per-square foot prices than you might otherwise get for a Sunset home.
We’ve talked about how the charm of this Americana-meets-San Francisco neighborhood has captured the imaginations and pocketbooks of buyers looking to have bigger homes with character and proximity. Indeed, average prices here are pushing past the $2 million mark, which has had a positive knock-on effect on its adjacent Inner Parkside neighborhood where there are more homes that have yet to undergo the mandatory Sunset-Parkside once-in-fifty-year updating. And while West Portal has been on many people’s radars for quite some time, the Inner Parkside’s growth curve just started about 3 years ago as $2 million is still a substantial number despite rising incomes. For both areas, watch for more fixer homes here go for higher prices especially if the house is on a bigger parcel with views and the potential for higher-end finishes or more desirable floorplans.
Don’t let the slight declines in the traditionally strong north side neighborhoods trip you up. As we’ve said many times before, when folks think of Pacific Heights they think of grand redone mansion-like homes. But when they got there they would oftentimes encounter musty old houses that needed to be redone. Nowadays when you are in Pacific Heights you’re more likely to encounter construction crews and port-a-potties as the musty old houses are undergoing the conversion into those big mansions you’re picturing (if you want to see completed mansions then you should go over Presidio Heights). Anyway, these projects take time to complete (2-3 years at least) and, if it’s a flip, face an interesting dilemma: at these high price points folks want to customize and personalize their homes rather than live with what a developer picks for the ‘market.’ But when done right, flipped homes will sell and will sell very well.
Price growth isn’t as strong as the rest of the City for a few reasons: an oversupply of same-looking inventory, increasing traffic congestion, MUNI light rail construction and new building construction in general. But once things get a little more settled down as projects get completed the housing inventory picture will become clearer (at least for a foreseeable future) and the area’s traffic issues should become better (fewer construction-related delays) condo prices will start to rise at a rate closer to the City’s 6 percent average. This should take place within the next 2-3 years. And, to combat the sameness issue we will start to see more distinctive projects and architecture like 181 Fremont for example.
Bayview: Thrown-together, opportunistic flipper projects in the Bayview where unsophisticated developers have pushed prices down.
Bernal Heights: housing prices have stabilized but are still very strong for projects that go the extra distance or are otherwise special and well-executed