West Coast Condo Markets Cooling Off
Condo pricing is on the decline in several West Coast markets compared to a year ago, signaling a slight cooling down. Affordability has peaked in San Francisco, but Seattle and San Diego could soon face a shortage of new condos.
We spoke with The Mark Co senior director of research Erin Kennelly about West Coast condo trends and where things stand. Kennelly said he expects the San Francisco, Downtown Los Angeles, Seattle and San Diego condo markets to post slow to moderate growth next year.
With strained affordability on the West Coast, higher appreciation rates could be expected in submarkets surrounding the urban core, such as Oakland and Alameda County in the Bay Area. In Los Angeles, Silver Lake and Culver City are increasingly popular; Bellevue and Kirkland continue to do well in Seattle. Downtown San Diego continues to see strong appreciation in its urban core since there has not been a large increase in prices over the last few years, Kennelly said.
Check out The Mark Co’s November data on condo sales and resales below.
Condominium Price Index: $1,213/SF
New Construction Inventory: 1,058
Resale Price: $930/SF
Months of Resale Inventory: 1.2
While November’s pricing increased 3% from October and the year-over-year pricing of new condos is flat, pricing is 10% lower than the peak of August 2015. New inventory was down slightly as 32 units were put under contract last month. Resale price per square foot decreased by 8% last month and is 9% lower than a year ago.
“San Francisco is unique for its strong local economy,” Kennelly said. “Over the past few years, not only has money poured into the Bay Area economy in the form of high salaries for tech workers and explosive growth for select companies, but the epicenter of the technology world has shifted from Silicon Valley to the City of San Francisco.”
Kennelly told Bisnow these factors all contributed to rental rates exceeding those of Manhattan and rapidly appreciating home prices. The city has reached the limits of affordability and rental rates and home prices are moderating. Only about a quarter of Bay Area residents can afford a median-priced home, and in San Francisco only 15% of households can afford a house, according to the California Association of Realtors’ Affordability Index.
DOWNTOWN LOS ANGELES
Condominium Price Index: $731/SF
New Construction Inventory: 543 units
Condominium Resales: $623/SF
Months of Resale Inventory: 3.5
Downtown Los Angeles’ pricing increase also decreased 3% last month and is 7% lower than a year ago. Construction inventory has stalled, but The Mark Co expects the area's condo sales to benefit from a springtime bump, and condo developments Ten50 and Metropolis are expected to begin closing escrow soon. Resale price per square foot increased 11% last month, but is still 3% lower than a year ago.
“Downtown Los Angeles is unique because it is undergoing a decades-long re-emergence as a vibrant urban center with not only commercial uses, but lively retail and dense residential layers as well,” Kennelly said.
The move started after an adaptive reuse ordinance passed in 1999, making it easier to convert old industrial buildings to residential. Thousands of new residents have since moved into downtown. He said while prices have sagged recently in the market, long-term trends remain positive as it becomes more popular for residents.
“Soon Los Angeles will have the downtown a city of its size deserves,” Kennelly said.
Condominium Price Index: $802/SF
New Construction Inventory: 453
Resale Price: $740/SF
Months of Resale Inventory: 1.2
Seattle’s condo pricing decreased by 1% last month and is 4% lower than a year ago. New inventory is low, and the 374 units within Nexus won’t be completed until mid-2019. Luma sold out last month and only seven homes remain at Insignia and 72 units at Gridiron. Once these remaining homes close escrow, no new condos will be available for occupancy until 2019, Kennelly said. Resale price per square foot increased 10% last month and is 13% higher than the previous year.
“There will be positive pressure on downtown Seattle condominium prices over the next several years as new construction supply approaches zero,” Kennelly said.
Condominium Price Index: $638/SF
New Construction Inventory: 120
Resale Price: $566/SF
Months of Resale Inventory: 1.9
San Diego’s condo pricing sagged by 1% last year and is 2% lower than a year ago. The biggest issue facing San Diego is a lack of new construction inventory. Pacific Gate with its 120 units is the only new development selling in downtown San Diego. Resale price per square foot declined 9% in November, but is 10% higher than last year.
While San Diego is similar to Seattle, facing a shortage of new condos, the city has a smaller population and lacks the economic engine seen in Seattle, Los Angeles or San Francisco.
“It will be interesting to see how ‘lifestyle’ cities such as San Diego fare during this era of increased worker mobility and emphasis on quality of life,” Kennelly said.