2-4 Unit San Francisco Market Report January 2019

Allison Chapleau
January 9, 2019

San Francisco 2-4 Unit Building Market 2018

January 2019 Market Report

Economic, political and even environmental volatility were powerful factors in 2018, and promise to continue in 2019: There are a lot of spinning plates right now - locally, nationally and internationally - with the potential for both positive and negative impacts on local housing markets. Generally speaking, last year was a strong one in Bay Area real estate, but varied between a hotter first half and a somewhat cooler second. Our next significant indicators of market direction will probably come with the start of the spring selling season.

Selected Market Indicators

Some of the charts below illustrate annual trends for longer-term context, while others track by quarter to reflect more recent developments, as well as seasonal fluctuations in the market. As in the general residential market, there have been some indications of softening in the last 2 quarters.

Sales Breakdown Overviews

Rent Trends

What is being measured and who is doing the measuring varies in the following charts. Some reflect median list rents for 5+ unit buildings, while others reflect weighted average asking rents for 50+ unit buildings. There is no definitive resource for tracking what rents are actually being paid for which units, and there is not a reliable resource specifically for Bay Area rents in 2-4 unit buildings. Numbers will disagree between differing measurements. What is important in these charts are the sense of general values and trends over time. How they apply to any particular unit is unknown.

This chart going back to 1994 gives more context to the ebb and flow of rental rates over time. Rents are extremely sensitive to changes in general economic conditions.

This chart is a very approximate calculation of the impact of SF rent control on rental income over time as compared to market rents. It adds up to a substantial amount of money for both landlords and tenants - which is why rent control is such a large, continuing political issue, especially in cities like SF and Oakland, with majority tenant populations.

Economic Factors

Employment growth - in many cases of very well paid jobs - has continued around the Bay Area. This, of course, is a huge factor in its housing markets.

Migration: On a domestic basis, more people are leaving the Bay Area to go to other metro areas in the country than are arriving from other metro areas, and housing affordability and tax issues are widely cited as big reasons. However, foreign immigration tips the scale, for the time being, to continued, if slowing, population growth. The latest census data does not yet reflect changes that may have occurred since the anti-immigration position of the Trump administration has come into play. (About 35% of Bay Area residents were born in a foreign country.)

There are over 70,000 new housing units in the San Francisco pipeline, and Oakland's pipeline has been swelling rapidly as well. However, anecdotally, the word is that developers are quickly pulling back in SF due to increasing land, labor and affordable-housing costs, as well, perhaps, to increasing economic uncertainty. For existing landlords, that would mean less new supply coming on market and less competition for tenants from new apartment projects.

After climbing significantly through November, interest rates have been dropping since then, through the first week of January. However, rates are still much higher than the lows seen in the last few years, and predicting what will happen in the near future is very difficult indeed

Broker Performance

With the mergers this past year of Paragon Commercial and Pacific Union Commercial into Compass, Compass has become, far and away, the dominant brokerage in the multi-unit residential market.

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