San Francisco housing has cooled as some flee the city, but demand is still there

Greg Tribulato is having trouble getting buyers interested in two extensively renovated condominiums he’s trying to sell in San Francisco’s Mission district.

They’ve been on the market for three months. The one with two bedrooms is going for $1.5 million, and the four-bedroom unit costs $2.3 million. He said he and his father, Gary, are talking with the seller about renting out the homes or lowering their prices.

“We did everything under the planet that’s humanly possible,” he said. They staged the homes, they created websites with custom domain names, videos and 3D digital tours, and they sent out flyers and emails to get people’s attention. 

The coronavirus pandemic and corresponding recession have shaken the dynamics of the second-most expensive city to buy a home in the U.S. (The Silicon Valley city of San Jose boasts the highest median home sale price, according to data maintained by Zillow). Brokers say many people simply no longer wish to live in densely populated areas, especially apartment buildings where they have to share common areas such as elevators. People are looking for enough space for a home office or two. They want their own outdoor space, and some people even want garages because they expect to buy cars in order to commute safely when they have to return to work. Plus, some people who have lost their jobs have been flocking to less expensive places.

Technology companies with extensive real estate in the region, such as Facebook and Google, have been adding to the upheaval. Many have told employees they can keep working from home for months. A few companies, such as Atlassian, Okta, Slack, Square, Twitter, VMware and Zillow, have gone further, declaring that many or all employees can stay remote permanently.

But while San Francisco’s infamously red-hot housing market has cooled, houses are still selling — they’re just sitting on the market for longer, and not receiving as many bids as they did in recent years.

In August the number of home listings in San Francisco reached the highest point in at least four years, at 1,483. Price cuts are also more common than they’ve been in at least four years, according to data from the National Association of Realtors. The median listing price of a San Francisco home in August, at below $1.4 million, was the lowest since February 2019.

The inventory of available homes in San Francisco is the highest it’s been in six or seven years, said Patrick Carlisle, chief market analyst for the Bay Area at Compass, a venture-backed real estate brokerage company. Buyers have become more picky. Homes are getting two, three or four bids, instead of eight before the virus hit, said Robert Collett, an agent with Berkshire Hathaway HomeServices Drysdale Properties.

Part of the reason for the high inventory is because people held off from listing San Francisco homes in March and April — normally the spring home buying season — after Mayor London Breed announced the city’s shelter-in-place order. As a result, more homes than usual have come up for sale in the following months.

But there’s also a lifestyle shift, suggested by the red-hot market in the suburbs. Many of the things people love about the city, including its clubs and museums, are unavailable at the moment. Consequently, the densest parts of the Bay Area, typically the most in demand, are currently the softest, said Carlisle.

“More rural and suburban counties and markets have gone absolutely nuts — Sonoma, Monterey, Marin,” Carlisle said. “I’ve heard Tahoe is absolutely out of control.”

Lake Tahoe is a getaway spot several hours northeast of the city where people historically keep vacation homes. One broker there, Breck Overall, said he and his partner Jeff Hamilton did a year’s worth of transactions in two and a half months. Normally the busiest time of the year is the Fourth of July, when traffic from the town of Truckee to the lake is bumper to bumper.

“That’s what it’s like almost every day,” Overall said. “It’s not letting up.”

People are also moving to Marin County, which San Franciscans can reach by crossing the Golden Gate Bridge.

Rick and Victoria Dade, who had lived in the city for more than two decades, recently abandoned a newly constructed home in the Marina District for Marin. As playgrounds shuttered and parks limited occupancy across San Francisco, their living situation proved untenable for an elementary- and middle school-kid eager for open space. Rick owns a commercial general contracting company, called R3 Builders, that services San Francisco and other parts of the Bay Area, including Oakland. Victoria works for a video technology company, Sonic Foundry, based halfway across the country in Madison, Wisconsin.

While their children’s age was the primary driver behind the move, the Dades said their family was after a lifestyle change. 

“We had always thought that we would possibly move to Marin, and we just hadn’t been ready to do it,” Rick Dade said. “And, as you see reports about people leaving the city for the suburbs, it can almost become a self-fulfilling prophecy.”

CNBC spoke with several former San Francisco homeowners who have moved out of the city in recent months. Like the Dades, the majority did not cite the Covid-19 pandemic as a key factor in their decision-making, but rather pointed to the pandemic as an accelerating force. In other words, people who were already planning to move to the suburbs simply expedited their plans.

Those trends dovetail with recent data. In a survey of 1,350 people conducted between January and June by moving company Hire A Helper, only 15% said they had relocated because of Covid-19.

Andrew Miramontes, who works in sales for European wine importer Weygandt Metzler, had been renting in San Francisco since 2015. When the calendar turned to 2020, he and his wife Erin started looking for homes outside the city to better suit their family’s needs, including their young daughter’s quest for more room to walk. The Miramontes extolled the city’s arts and culinary scene, but said that once the pandemic hit, the city’s deteriorating infrastructure, coupled with shutdowns for the foreseeable future and an uncertain economic recovery, accelerated their plans.

“Unfortunately, San Francisco, and the space that we had, was not going to allow for what we saw for ourselves,” Miramontes said. “We were forced to put eyeballs outside of the city.”

A few months after San Francisco enacted its shelter-in-place order, Miramontes and his wife honed their search, focusing on Marin and Sonoma counties. In five days they met with a realtor, viewed five homes, and submitted an offer on the home they would eventually buy in Novato — about 30 miles north of San Francisco in Marin County.

“It happened that fast,” Miramontes said. “When we were looking, if there was an appealing property, it seemed to be pending sale in less than a week.” His real estate agent said some clients were closing on homes based based solely on pictures.

Some long-time San Francisco residents are going farther than the suburbs.

Christin Anderson, a senior account executive at Seattle-based sales management software start-up Outreach, had lived in San Francisco for 20 years before the pandemic hit. After spending three months at her home amid shelter-in-place restrictions, Anderson decided to rent a place outside of the city to “ride out the summer” and settled on Park City, Utah.

Six weeks into her stay there, Anderson made the move more permanent. Many tech companies, including hers, were not requiring employees to be back in the office until 2021, at the earliest. Anderson bought a town house in Park City and began renting out her condo in San Francisco’s Nob Hill neighborhood.

Silicon Slopes — the moniker given to a stretch of cities along the Rocky Mountains in Utah, from Ogden in the north to Provo in the south, with Park City and Salt Lake City in between — has emerged as a hotbed of tech entrepreneurship in recent years.

“There are a lot of great business opportunities here,” Anderson said. “If things return to normal, I can come back to San Francisco. And that was a big part of my decision calculus. But, right now, no one knows when this will end and what the tech industry will look like on the other side.”

For his own part, Collett, the agent with BHHS Drysdale, said that for the first time in 12 years, he’s ready to give up his apartment and his view.

“I think it’ll take years for the city to come back, and it’ll never be the same,” he said. “Cities will never be the same. They must evolve. It will take at least five years to forget the fears. And so everything needs to be retooled — the use of the buildings, the ventilation systems, public transit, business logistics.”

Few people are willing to speculate on when exactly life, and San Francisco’s real estate market, will return to normal. Over the long term, though, there are plenty of reasons for optimism about the city.

The Dades saw blistering demand for their Marina District home, which they listed earlier this month. The property was in contract within a week, sold to a couple decamping to a new neighborhood of San Francisco.

“If you’re not going all cash with a quick close, and no contingencies, then you’re probably going to get beat out,” Rick Dade said. “The market is that strong.”

For those who have opted to stay in San Francisco, less trendy neighborhoods with more space, including the Richmond, the Sunset and West Portal, are becoming more highly sought after.

Then there are San Francisco renters who held off on buying homes in the city and are now living and working elsewhere during the pandemic. Some found homes to rent outside the city or places listed on Airbnb or VRBO, or friends’ houses, said Alexander Lurie, an agent with Compass. Eventually, they could come back.

“They’re looking at this as a really exciting opportunity to experience different parts of this region, but their mindset is when things open back up, they’ll be back,” he said.

Most agents agree that rents and condominium prices will remain lower through 2021, while prices for single-family homes will be less impacted.

“San Francisco is very resilient,” Tribulato said. “We may get hit a little bit, but for some reason, we always seem to come back.”

WATCH: New York City real estate prices could correct further, says Bess Freedman