Tenderloin Heights

A Note of Optimism on the Horizon

by Jim Forbes

For the fifth quarter in a row, the asking price for a two-bedroom apartment failed to rise. Based on the hundreds of online ads in the January 6 issue of the San Francisco Chronicle, rents are at their lowest number since April 2000, having dropped another 10 percent since October 2001. Could the end be near?

I think we’re close. If I needed to make a prediction, I see another 5 percent drop to bring us in line with the Bay Area’s cost of living over the past five years. This is the place where we have consistently rested after heavy exertion, and then a flat, rejuvenating period follows, before the next wave of cutting edge “whatever-powers-us-skyward” hits again.

One needs to pause and think about this prediction, one based on history as much as anything else. We live and own in a market where the worst problem is to keep abreast of inflation. When I got into this business twenty-one years ago, I thought that was the reason to own real property—to have an inflation hedge. Nothing more. Boy what a surprise this has been. Thus, the latest two-bedroom median asking figure: $2,100. Next stop? $2,000. After that, who knows?

Of course, I could be wrong. According to the statistics from 1997, the two indices that I believe reflect trends for San Francisco’s rents—the NASDAQ Composite and the median price of a single-family home—both appear to be holding higher than SF’s rents (ever since the time when you could snatch a two-bedroom for $1,500 per month).

Single-family homes normally track rents closely, so it will be interesting to see what January holds for the local realtors. The NASDAQ may be on another January false bull, in which case the only ones making any money will be New York money managers and a few local venture capitalists, none of whom will likely be looking for an apartment here anytime soon, at least not where I own them.

No, the driving force behind rock-solid increases in rent—jobs—is still a ways off. If anything, there will be further job cuts long before new job formation, although much of the serious damage has already occurred.

Other factors are at play as well. For us, foreign students are a big source of our customer base. However, now student visas require a waiting period of several months. I've even heard that visas are basically hopeless for students from some countries. Overall, moving to San Francisco from afar is also way down. People just don’t seem as eager to hop on that plane, whether it is to take a look or move here indefinitely.

There is a feeling that the New Year has brought some renewed optimism about the future. Our phones are ringing more, prospects are willing to pay today what some “free rent” offers we made last year as rental enticements and if we give them hardwood floors, anything seems possible. (What is it with hardwood anyway?) Of course, after 2001, anything would seem like an improvement.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Jim Forbes is President of Urban Properties, a real estate investment and brokerage firm. He is a SFAA board member and publisher of SF Property Report. He may be reached at propnews.com. © Copyright 2002.