It was the Golden Age before the Years of Our COVID-19 Insanity that a 640-square-foot home on San Francisco's Potrero Hill sold for an astounding $2 million in March of 2020. The price included broker fees, a demolition permit, and architectural plans to replace the shack with a four-level, two-unit building. Experts predicted that the new building, with its views of the bay and downtown, might be worth $5 or $6 million.
News about the shack seemed to dry up after it was sold, but as of January 2023, the Google Maps street view shows nothing but an empty lot, a fence, and a yard sign for a local construction firm.
The cost to build that two-unit replacement home was estimated at $1.8 million and, with the permits settled pre-sale, shouldn't have taken particularly long. Yet the lot remains empty, and after reading today's news, you won't wonder why.
After two years of reporting on the collapse in San Francisco's commercial real estate market, it looks like the contagion might finally have spread to the residential market, too.
According to a report in today's Daily Mail, "nearly one in five homes sold in San Francisco have sold at a loss in recent months."
"The 17.8 percent of San Franciscans losing money on their home sale in the three months to the end of February," the paper reported, "is close to the highest level in a decade. And it is four times the national average of 4.3 percent."
What it adds up to is an average loss of $155,500.
My gut reaction was that sellers were having to cut their asking price by an average of $155k, but that they weren't necessarily taking losses. For example, if you bought your house for $1 million, tried to sell it for $1.5 million, but had to settle for $1.35 million, then you haven't taken a loss. You've just earned a smaller return.
But at least according to the DM, that isn't the case. Nearly 20% of sellers are actually taking a loss.
Losing money on residential property sales in San Francisco is like losing money on beer sales at a baseball game — something has gone seriously wrong.
I can't stress strongly enough that these losses are happening in one of the most incredibly tight real estate markets in the country. The city has a grand (but completely illusory) plan to build 82,000 more housing units by 2031. Yet the San Francisco Standard reported this week that the city "had only issued permits for seven housing units in the first two months of the year."
At the rate the city is currently issuing permits, it will take 1,952 years to meet its goal, in the year 3976. On the other hand, if you're trying to sell your house and get out of Dodge, the last thing you want potential buyers to see is your asking price right next to a bunch of "Under Development, Open House!" signs.
But still, $155,000 to get out of San Francisco?
As someone who left that city 30 years ago when things were much less bad than they are now, I can tell you that today it would be worth every penny.
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