Dog Days of Summer

written by Jay Greenberg

While San Franciscans enjoy summer—with the COPA deadline looming—the market sees a lull.

I am writing this article in late July, and I know many have been enjoying the long-awaited summer after that very wet and cold Bay Area winter. Below are the second quarter 2019 average value indicators and transaction levels through June 30.

There has been a decline in almost all value indicators, and transaction levels have declined from 2018 highs. Personally, the market has felt very strong into July, yet I am starting to sense a slight shift in the market benefitting buyers. The market is officially in a summer lull, and I am starting to see an increase in inventory as the early September COPA deadline looms. When selling, pricing is key; and there are rewards and consequences to getting it right or wrong. Fundamentals remain strong in the marketplace with interest rates at year-lows and a strong rental market. I expect the second half of 2019 to remain competitive for quality assets offered for sale and more buying options for investors than we have seen in the recent past.

The following are 2019 second quarter (April-July) statistics for the 5-9-unit sector and the 10-plus-unit sector versus the second quarters of 2015, 2016, 2017 and 2018.

5-9 Units
Based on the reported value indicators, 2016 was a peak pricing point for this sector of the market, and we are still hovering around these peak levels. The average price per square foot has bounced up and down from $506 in 2015, to $561 in 2016, and $501 in 2017. Price per square foot hit a decade high in 2018 at $587, and this year it has retreated approximately 4.5% to $560. Gross Rent Multipliers (GRM) hit their peak in 2016 and have been slowly trending back ever since. The average GRM was 17.51 times gross in 2015, 18.54 in 2016, 18.16 in 2017, and 17.88  in 2018. The downward trend continues for 2019 with the average GRM coming in at 15.33 times gross, a 14.26% decrease from 2018.

For the past decade, we have seen rising prices per unit every year (except for 2017, when the cost per unit slipped approximately $50,000 from its previous high in 2016). The cost per unit was approximately $444,000 in 2015, $513,000 in 2016, $454,000 in 2017, and $509,000 in 2018. The upward trend continues in 2019 with the average price per unit coming in at $536,000, a 5.43% increase from 2018.

Dollar volume for the 5-9-unit sector was approximately $107 million in 2015 and $164 million in 2016. Dollar volume rose to a new high of 190 million in 2017, which we nearly matched at $188 million in 2018. Second quarter dollar volume in 2019 is $153 million, an 18.09% decrease from 2018. There were 40 closed transactions in 2015 and 53 in 2016. We hit a new high of 70 sales in 2017, and saw 57 closings in 2018. Second quarter 2019 saw 47 transactions, a 17.54% decrease from 2018.

10-Plus Units
Value indicators have peaked in the second quarter over the last three years; however, this is not the case in 2019.

The average price per square foot was $508 in 2015 and $479 in 2016. The average price per square foot reached a new high of $544 in 2017, which we topped again with $617 in 2018. This average dropped to $580 in 2019, a 5.96% decrease from 2018. Gross Rent Multipliers have been increasing over the past four years, but nothing goes up forever. The average GRM was 15.9 times gross in 2015, 18.4 times gross in 2016, 18.79 times gross in 2017, and 18.87 times gross in 2018. The average multipliers have retreated to 16.10 times gross in 2019, a 14.68% decrease from 2018.

Price per unit was approximately $322,000 in 2015, $334,000 in 2016 and $369,000 in 2017. This number jumped significantly to $477,000 in 2018. Price per unit retreated slightly to $450,000 in 2019, a 5.6% decrease from 2018.

Dollar volume for the 10-plus-unit sector was approximately $179 million in 2015, and then it dropped to $144 million in 2016 (our lowest dollar volume in this category since 2010). There was a significant jump to $344 million in 2017, and in 2018-dollar volume was $337 million. Dollar volume retreated to $226 million in 2019, a 32.95% decrease in a year-over-year comparison. There were 28 transactions in 2015 and 24 in 2016. This number rebounded to 44 sales in 2017, and then dipped to 36 in 2018. There were 27 closings in 2019, a 25% decrease from 2018.

The source of the numbers reported come from Jay Greenberg, Trigg Splenda, San Francisco Multiple Listing Service, and Costar Comps.

The Big Picture
The data above shows a decline in five of the six value indicators from one year ago, along with declining dollar volume and number of transactions. The past three years showed rising indicators in the second quarter, only to see the trend reverse in the following quarter. However, this year’s second quarter stats do not follow the trend.

I cannot argue with the stats, yet the market into July has felt robust. I would classify current conditions as a sellers’ market, but the market is starting to lean a little in the buyers’ direction. Every offering that I have brought to the market this year—except for one—has received multiple offers within two weeks of marketing; all but one sold at or above the asking price. Over the past 30 days, we have closed three properties that set new pricing records in the city per San Francisco MLS. However, the market is splintered and quality properties are still in high demand. On the other hand, there are many marginal properties sitting on the market now.

It is late July as I write this, and there has certainly been a lull in the market over the past few weeks. I commute to the city from Marin County: when I can drive down from the Golden Gate Bridge and zip through two tunnels without stopping until I hit the first red light at Lombard and Lyon, it is a summer lull.

I also see an increase in properties for sale, and I believe this is the result of COPA (nonprofits first right of purchase and first right of refusal; see page 8 for details), which is supposed to come into effect the first week of September. Pricing is key when selling; it should be right, out of the gate. The statistical difference between value indicators for properties that are in escrow within 30 days of entering the marketplace vs. properties that do not enter escrow in this time period are significant. The average multipliers and price per square foot are more than 10% lower for the properties that do not enter escrow in the first 30 days.

I am not surprised that dollar volume and number of transactions are lower because first quarter transaction levels were way below par. Typically, our marketplace gains momentum as we move through the year, with the fourth quarter producing the highest activity levels. The second half of 2018 was amazing with value indicators, dollar volume, and transaction levels—a record setting year. It will be difficult to top the 2018 numbers as we head into the second half of 2019.

Regardless, interest rates keep falling and are currently at 2019 lows. Five- to ten-year fixed rates are available in the mid 3.5% range and, depending on underwriting, will fluctuate from the low 3% to the high 3% range. Meanwhile, the rental market remains strong. In June, Curbed SF 
released the results of its compilation of five years’ worth of reported median rents in San Francisco from five rental platforms. It found that San Francisco’s median rent reached all-time highs in 2019.

I expect the second half of 2019 to remain strong for quality properties and that buyers will have the ability to shop more than they’ve had in the recent past.

For additional information related to any data points and/or market news, please contact Jay Greenberg at