The Penthouse Suite’s history dates back to the Roaring Twenties when it was built to epitomize the opulence of the era. In 1945, the venue hosted world leaders who drafted the first United Nations Charter.
Thanks to publisher Lois Lehrman, ten wise women and 13 male colleagues in the real estate industry feasted on filets and fingerlings, and discussed the current record-breaking home prices and ever-changing market. Let’s listen in:
Lois Lehrman: Welcome to our annual “brain trust of real estate,” and it’s my great pleasure to introduce our delightful moderator Mary Kasaris. Mary’s the regional managing director for First Republic Bank, for Silicon Valley and the Peninsula. She’s been a banker for 34 years, 17 of them at Bank of America, and she’s the senior person representing First Republic in her region. Mary is totally fabulous, fun to be with, and so…Mary, take over!
Mary Kasaris: I paid Lois a lot of money to be my walking testimonial. (Laughter) First, I want to thank Lois and all of you here today for being supportive of the bank. No more commercials because you know who we are.
We all also know that San Francisco’s the hottest market in the country, so I’d like to begin with your thoughts on, ‘How much more of this amazing success can we expect to see?’
Barbara Callan: ‘For Sale’ signs appear everywhere in other cities, but not here in San Francisco, because there’s so little inventory and so much competition. This is an international city. Everyone wants to live here, and property will always be in demand. That’s why buyers and sellers need a seasoned real estate agent. (Hoots and applause.)
Joel Goodrich: I feel there are four mega-trends converging on San Francisco that will be extremely positive for the real estate market. One is increased international buying and investment, particularly from China. Two is the growing tech presence in the city, both from Silicon Valley and companies around the world. Three is the environment. The future is high-rise living, as that’s the greenest form of living, and ours is the prime high-rise city on the West Coast. Four is demographics. In the past, people retired to the country, suburbia, or resort-style areas. Today, they’re staying in or moving into urban areas.
Bruce Lyon: I agree that it’s mainly been high-rise growth in the city. We’re not even close to London or Paris. This is such a small geographic area; we’re going to see new buildings go up quickly, whether the investors are here or overseas. We all agree that there’re a finite number of transactions at the luxury level. Will we always have a limited amount of inventory, incredible demand, and rising prices? My answer is yes, due to the city’s cosmopolitan nature and the lack of significant property development.
David Bellings: I’d like to comment on the original question regarding how long this market will last. Although it’s always difficult to see the future, it’s somewhat reliable to predict markets based on historical trends. Today the world is different, and many factors come into play globally. No longer are the ups and downs simply defined benchmarks, such as unemployment, interest rates, and the like, which historically related more to the U.S. economy. That said, I think we’ll have a strong market for the next few years with small increases each year.
Nina Hatvany: A lot of the young buyers want to be in the southern part of the city, such as the Mission, Glen Park, and Noe Valley, because of the easy commute to the Peninsula, its hot restaurants, and good weather. There’s fierce competition in those areas. I just listed and sold a home on Dolores Avenue that went for more than 20 percent over the asking price, and closed in a week. I tell my buyers to give the areas in the northern part of the city some consideration. Pacific Heights, Cow Hollow, and Russian Hill are a “good deal” nowadays!
Gregg Lynn: It’s easy to see how prices will go up 5 percent per quarter when there’s so little inventory. As we’ve said, people are eager to move into the Mission and downtown luxury buildings, and there’s not much left to buy. The properties that do sell are selling at peak prices, and yet overall sales are substantially lower than last year because of reduced inventory. At the same time, I’m very excited about the supply of new luxury condos to be built over the next five years.
Jeffrey Gibson: While I can’t predict the future, a significant cause for the current robust market is the four-to-five years of pent-up buyer demand, which was stalled during the market downturn. Fulfilling that demand won’t happen in just a year or two. I expect it will take much longer and then, one hopes, we’ll have a more balanced, even market. Given the city’s limited geography and development opportunities, there will always be some level of limited inventory.
Olivia Hsu Decker: My prediction is that San Francisco/Bay Area home prices will continue to go up because our prices are still cheap, compared to New York, Aspen, Beverly Hills, London, Hong Kong, Shanghai, Singapore, Moscow, and other major cities. The Bay Area has a vibrant high-tech industry, two great universities—Stanford, UC Berkeley—a world-famous wine country, great natural beauty, wonderful climate—all the reasons that attract buyers. We also see the second home and discretionary market starting to come back in Belvedere/Tiburon, Stinson Beach, West Marin/Bodega Bay/Tomales Bay, and the wine country. My company sold six homes in these areas in the $4 to $9 million range this summer.
David Papale: All of our neighborhoods are changing. As long as interest rates are low, or artificially low, then demand stays high. The big question is, ‘What will happen when rates go up? How will buyers track the continued growth of the market?’ It’s interesting to note that in 2000, 28 percent of buyers used the Internet in their search process. In 2005, it climbed to 62 percent, and in 2013, 98 percent of buyers use the Internet. Also, today, 7 percent use computers, 15 percent use tablets, and 70 percent use their smart phones!
Anita Head: It’s incumbent upon us, as professionals, to remember that we have to communicate with the younger generation in a way that won’t frustrate them. In most cases they want to do their own homework, and be able to get information from us, and communicate with us—by text. We need to be aligned with how efficiently and quickly they can navigate through a transaction and, at the same time, understand the education they need to make an informed decision.
Jay Costello: Regarding all of this wonderful technology we all use, we also need to remember that all of these apps, widgets, and gizmos are tools and not crutches. We need to know how to use them and apply them in the right situations with our clients. This is still, and will continue to be, a ‘people’ business. An agent meeting with his or her client in person is the best possible way to learn about that client’s needs and what properties might best suit those needs.
Janet Schindler: Speaking of technology, it seems that as people’s lives become more public via the Internet and social media, greater numbers of buyers and sellers seek the privacy of off-market sales. I’m selling more non-MLA (Multiple Listing Service) homes than ever before, and the trend is growing. And as we’ve said, luxury home prices are continuing to rise here, where buyers outnumber sellers.
Carolyn Chandler: In our property management business, we’re also seeing lack of inventory. We’ve had large numbers of “new to the city” young, affluent tech workers looking for renting units. Some of them want the Mission, Potrero, and SOMA; others want the Marina, Pacific Heights, and Russian Hill. These young techies renting now will be the next group of buyers. They’re so excited about the city, they won’t be moving to the suburbs any time soon.
Amy Millman: I’d like to comment on interest rates. There’s been a modest rise in recent months, but on a relative basis, interest rates remain low, and current home buyers’ actual monthly payments have not risen substantially. At BNY Mellon, the jumbo mortgage business continues to be extremely robust year after year. Our business is up more than 100 percent. We continue to see a large volume of both purchases and refinancing.
Steve Gothelf: I do agree that interest rate fluctuation will affect the market to some extent, but in the world of residential real estate, there are just so many cash buyers who need housing, and they want a certain kind of housing, regardless of what the interest rates are doing. A few years ago there seemed to be more homes available in the $5 to $6 million range, whereas today, more homes are available in the $9 to $10 million range.
Barbara Klein: I think we’re obligated, as realtors, to give our clients the value proposition of their investments. If mortgage rates go up, the increase is usually nominal. In an expanding market such as San Francisco, the asset appreciation will quickly eclipse that increase. Also, Bay Area investor confidence is getting stronger as rental demand increases. Many investment rental properties are experiencing cap rates of 6 to 7 percent, and this is driving residential real estate sales in both Marin and the city.
Malin Giddings: I’ve noticed that young techie buyers seem overly focused on price per square foot. That’s a mistake in a tight market as there are so many other factors that influence price. Having a lot of light is huge! High ceilings and doors add a lot of value, as well as a flat block, walk-out garden, water views, an open floor plan, large closets, skylights, and condition. I’ve also noticed that most young families no longer want to be in the larger house with a lawn outside the city. Suburbia is out and city is in! Young couples/parents want to be close to the pulse of the nighttime action. Commuting is not for them!
Bill Bullock: I’ve been wondering what the hell happened to Marin County. (Laughter)
Charlie Moore: I’ve just received a cell phone red alert that the San Francisco/Marin market stalled today because there’re no brokers around. (Laughter) In post-2008, many of us were in the room at First Republic Bank when economist Ken Rosen predicted that real estate would lead us out of the recession. Today, five years later, we have reasons to be optimistic. The San Francisco metropolitan area is rated in the top ten for home price gains nationally, with the strongest gains since 2005. The resulting wealth effect is key to the recovering economy. Home equity and consumer spending are up.
Mark McLaughlin: Our markets are reflective of two very important dynamics. First, the San Francisco Bay Area is supply-constrained. In good times, demand always exceeds supply. Second, we have a vibrant job market. Led by our four western counties (Santa Clara, San Mateo, San Francisco, and Marin), we’re consistently generating exceptional jobs. In the last nine months, this demand for a highly professional workforce has increased the employment rates in Alameda, Contra Costa, and Napa counties. This is creating significant lift in the housing market.
Mark Best: I’ll disagree with the group a little in that I don’t think it is a great market. It’s an imbalanced market. For every happy seller with ten offers, there are nine unhappy buyers, agents, loan brokers, contractors, and movers, etcetera. And if that seller becomes a buyer, they enter that same uncertain fray. I don’t know what will solve this imbalance, but my optimism and pessimism about the future market are both predicated on cash. In this market, cash buffers us, and we have lots of cash because there are very few lucrative places, globally, to put it. Cash alone, however, won’t complete the recovery. We need a broad spectrum of buyers and homes to buy.
Gene Ogden: The comment that new single family homes aren’t being built in San Francisco, hence driving home prices up, reminds me that this has also encouraged buyers to consider buying in outlying neighborhoods, due to being out-priced. Many of my clients who wanted to buy in Noe Valley are now seriously considering District 6: Anza Vista, North Panhandle, Alamo Square, Hayes Valley; and District 9: Potrero Hill, Bernal Heights, Dogpatch. In these neighborhoods, homes sell far above the asking price and receive multiple offers.
Jay Costello: (raises hand) Thanks so much for lunch, Lois. May we be excused now?
Lois Lehrman: (Laughs) Yes, and thanks to our wonderful moderator Mary, who kept things moving—and many thanks to The Fairmont general manager, Thomas Klein, for loaning us his Penthouse Suite—and to all of you for coming today, and for your consistent friendship and support. I’m happy to offer a second dessert to anyone who can tell me how many years we’ve been having this roundtable luncheon.
Alas, there were no takers. But if she asks next year, the answer will be “Eleven.”