SF Apartment Report Q3 2024

The first three quarters of 2024 is in the books and reported here. ?As we head into the 4th quarter there is positive momentum and increased activity levels in the sales market. In September, the federal reserve lowered the federal funds rate by .5% marking a shift from the previous trend of rate hikes. Despite the rate cut, rates for borrowers have not come down. In April of this year, the mayor’s office issued Executive Directive 24-01, mandating the Department of Building Inspection (DBI) develop and publish retrofit criteria for concrete buildings by October 16, 2024. Despite the deadline passing, DBI has not yet released the specified retrofit criteria. After reviewing the proposed ordinance, I share my thoughts on the direction I believe the city will take for concrete buildings.

The following represents the 2024 third quarter (Jan-Sept 30th) statistics for the 5-9 unit sector compared to the same period from 2019 through 2024.

In 2019, the average price per square foot was $549 and increased in 2020, setting a new high at $570 per foot. In 2021, the average price dropped to $527 per foot, and in 2022, decreased to $510 per foot. In 2023, the average price per square foot continued downward to $445 and in 2024 the downward trend continues with our third quarter average coming in at $411, an 8% decrease in a year over year comparison and a decade low for this value indicator.

Gross Rent Multipliers (GRM), peaked in 2017-2018 and subsequently have gradually declined. In 2019, the average GRM was 17.22. In 2020, the GRM dropped to an average of 16.01, and in 2021, it dropped further to 14.79. In 2022, the average GRM inched up to 15.05, and in 2023, the average plummeted to 13.17. In 2024 the downward trend continues with our third quarter average coming in at 11.93, a 9.5% decrease in a year over year comparison and a decade low for this value indicator.

The cost per unit had been steadily rising since 2017 and peaked in 2020. In 2019, the average cost per unit was $491,000. In 2020, the average price per unit increased to $500,000, and in 2021, it decreased to $447,000. For 2022, the average price per unit settled at $448,000, and dropped in 2023 to $360,000. For 2024, the cost per unit increased slightly to $374,000 which is a 4% increase on a year over year comparison.

In 2019, the dollar volume for the 5-9 unit sector (through the end of Sept) amounted to $265 Million, and in 2020, it declined to $188 Million. In 2021, the dollar volume rebounded nicely to $211 Million and the trend continued upward in 2022 with a decade high mark of $270 Million. 2023 saw a sharp decline in dollar volume with $146 Million through the end of the third quarter. For 2024, we have rebounded with $183 Million in dollar volume, a 25% increase in a year over year comparison.

Examining the number of closings during the same period, in 2019, 81 sales were recorded. The pandemic hit in 2020, and sales dropped to a decade low of 60 sales. The market rebounded nicely in 2021 with 74 sales and the momentum continued into 2022 with 96 sales, a high mark for the past ten years. The tide turned in 2023 with 65 sales. Similar to dollar volume, we have positive momentum for closing in 2024 with 82 sales, an increase of 26% on a year over year comparison.

The following represents the 2024 third quarter (Jan-Sept 30th) statistics for the 10+ unit sector compared to the same period from 2019 through 2023, along with the corresponding trends in Gross Rent Multipliers (GRM), average price per square foot, and average price per unit.

In 2019, the average multiplier was 16.05 and in 2020 the average was 15.72. By 2021, the third quarter average dropped to 13.85 times gross, and in 2022, the retreat continued with an average GRM of 13.42. Notably, in 2023, the third quarter average multiplier dropped to 10.54, representing a 21% decrease from the previous year. For 2024, the average GRM has inched up to 10.72 times gross.

The average price per square foot was $600 in 2019. In 2020 the average per foot number dipped to $569 and in 2021, the average price dropped to $514 per foot. In 2022, the average continued downward to $443 per foot and 2023, the mid-year average sank to $366 per foot, marking a 17% decrease from the previous year and for 2024 we inched back to $363 a foot.

In 2019, the average price per unit was $439,000 per unit. In 2020, the price per unit was $424,000. For 2021, the average slipped back to $374,000 per unit, and in 2022, the average cost per unit came in at $341,000. In 2023, the average cost per unit was $277,000, indicating a 18% from the previous year. In 2024, the average cost per unit has dropped to $250,000, which is a 10% decrease in a year over year comparison and a new decade low.

In 2019, the number of transactions recorded through third quarter was 50. Transactions dropped to 37 sales in 2020, and 52 transactions closed in 2021 and 2022. In 2023, we recorded only 28 sales, marking a significant 46% decrease from the previous year. For 2024, we have made some positive progress with 34 closing.

In 2019, the dollar volume was$436 million. In 2020, volume dropped to $325 million and in 2021, the dollar volume dropped to $318 million. In 2022, volume rebounded with $407 million in closings and in 2023, the recorded dollar volume dropped to $129 million, representing a substantial 68% decrease from the previous year. For 2024, we have positive progress with $141 million in dollar volume, approximately a 9% increase from 2023’s decade low.

The data sources for these reported numbers are Jay Greenberg, Vitaly Rutus, San Francisco Multiple Listing Service, and Costar Comps.

There is positive momentum in the market as we head into the fourth quarter. We have increased activity levels at showings and in the submittal of offers. Additionally, the dollar volume and number of transactions has increased in both reported categories in a year over year comparison. Value indicators remain at or near decade lows and we are hoping rate cuts will help value indicators going forward.

The Federal Reserve cut interest rates by 0.50% on September 18, 2024, lowering the federal funds rate to a range of 4.75%-5.00%. This was the first interest rate reduction in over four years, surprising many who expected a smaller cut of 0.25%. This marks a shift from the previous trend of rate hikes and signals the beginning of a potentially faster rate-cutting cycle. On the ground level, rates are approximately one percent lower than third quarter 2023. Currently, five to seven year fixed rates are hovering around the six percent mark.

Executive Directive 24-01, issued by the mayor’s office on April 16, 2024, mandated that the Department of Building Inspection (DBI) develop and publish retrofit criteria for concrete buildings by October 16, 2024. Despite the deadline passing, DBI has not yet released the specified retrofit criteria.

After reviewing the proposed ordinance, I anticipate the following developments: within the next year, DBI is likely to publish retrofit criteria for concrete buildings. This will likely include a multi-phase screening and evaluation process to assess seismic vulnerabilities. While owners may choose to voluntarily implement retrofits, there will be no mandatory requirement to do so.

A new alternative procedure, BSE-1E, is expected to ease the burden on property owners. BSE-1E focuses on life safety during less intense seismic events, offering more flexibility for retrofitting older buildings. This procedure is particularly relevant for buildings where higher performance objectives are too costly or technically challenging. It provides a more feasible approach to balancing safety improvements with the economic realities of retrofitting non-ductile concrete buildings.

Please note that this is my interpretation of the situation, and as recent years have shown, unforeseen changes can occur.

As of today, most election results are in. If the current vote leaders hold their positions, the Bay Area’s real estate industry is looking at a much friendlier political climate after Tuesday’s election. Daniel Lurie has won the Mayoral election with Incumbent London Breed conceding earlier today. CA proposition 33 which sought to expand rent control was soundly defeated for the third time. It appears that CA proposition 34 will pass and stop the sponsor of Prop 33 Michael Weinstein, from using proceeds from a federal drug program to fund future campaigns. It also appears that Dean Preston, a notorious anti real estate anti housing progressive will be ousted from the board of supervisors by Bilal Mahmood who is considered a moderate. There are other moderates currently ahead of progressives on other board of supervisor districts demonstrating anti-incumbency energy and a desire for change.

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