Downtown S.F.’s condo market is cratering, with units selling at reduced prices

The drop in the median prices in downtown neighborhoods was double that of other parts of the city. Outside of downtown, median price of condos dropped 7% in the last year, while single family homes dropped 7.5%.

While real estate brokerages tend to be rosy in their marketing materials, the Compass report doesn’t sugarcoat the current situation. It concludes that the drop in demand is being driven by “a triple whammy of economic, demographic and quality-of-life issues.”

“I knew that market segment had weakened but I didn’t realize the degree to which things had changed,” said Patrick Carlisle, chief market analyst for Compass. “It was a bit shocking.”

The problems are both macro and micro.

On the national level you have a declining stock market, rising interest rates and inflation. Meanwhile downtown San Francisco is lagging other cities in office occupancy, and the lack of foot traffic is crippling small business and making the streets feel less safe. The highrise housing that sprouted South of Market Street over the last 20 years was meant to serve the hundreds of thousands of workers who flooded into the city each morning. With those jobs gone remote, demand for housing has waned.

“San Francisco went from being the hottest office market in the world to just about the weakest,” said Carlisle.

Two recent reports of sales at Lumina, a two-tower luxury complex South of Market, show how the market has shifted, according to an analysis by Socketsite, an online publication that tracks San Francisco real estate.

The first involves a 1,791 square foot, three-bedroom, three-bath unit on the 32nd floor of the tower at 338 Main St. That unit sold for $3.25 million in May of 2016 and then traded again in August of 2019 for $3.5 million. In September of this year it hit the block again with a listing price of $3.15 million, before finally selling in November for $2.68 million, a drop of 23.4% since 2019.

Meanwhile a two-bedroom unit in the same tower is being marketed at $2.6 million, which, if it sells at that price, would represent a 21% decrease from its 2016 price of $3.295 million.

While the current market presents an opportunity for buyers, the rise of interest rates to a 20-year high offsets whatever savings might be gained through the lower price point, Carlisle said. But for buyers with cash for a down payment, or those willing to gamble that they will be able to refinance at a lower interest rate down the road, there are opportunities.

“This is a great time for buyers to negotiate extremely aggressively,” he said. “If you see a unit you like just ignore the asking price and decide what you are willing to pay for it. There are a lot of sellers who just want to move on. If they are able to close a deal, they will, even if it is far below expectations.”

Realtor Kevin Birmingham of Park North Real Estate said the report is consistent with what he is seeing around the city. He just sold one condo in the Twin Peaks area that was marketed at $695,000. It closed at $680,000. The seller expected to get $800,000.

As such, many would-be sellers are looking to rent their units. “Listing are getting withdrawn and going straight onto the rental market,” Birmingham said.

Gregg Lynn of Sotheby’s International Realty, who focuses on the luxury condo market, said the optimism of 2021 — when San Franciscans were getting vaccinated and starting to feel comfortable in crowds again — has given was to uncertainty.

Some families who bought before the pandemic expecting to split their time between San Francisco and wine country or Tahoe have found they don’t have much reason to come to the city. Others bought downtown condos to be near their children and grandchildren, only to have their offspring leave the city.

“A lot of our clients are not using their condos as much as they thought they would,” he said.

J.K. Dineen is a San Francisco Chronicle staff writer. Email: [email protected] Twitter: @sfjkdineen