Correction Chronicles, June 2016

In hindsight, market correction are always so obvious. The story goes something like this:

For the past several years, a hiring binge by well-funded technology companies has driven San Francisco apartment rents Francisco higher and higher. Beginning last fall, the financial viability of many of these companies was called into question and as a result, technology executives were forced to reign back on hiring and, in some cases, implement layoffs.

Slower job growth depressed housing demand, increasing inventory as apartments sat unrented while landlords adjusted to changing market dynamics. Adjusting, in this case, means lowering asking rents for the first time in years.

Two years ago, rental market anecdotes were all about bidding wars and sky-high prices. Now, stories are seeping out of deals to be had, tenants asking for concessions and more apartments to choose from. Rents are beginning to fall, information which is only recently showing up in data and media reports. Expect this trend to pick up steam in the months to come.

The next wave, only beginning, is turnover. First, tenants in market rate units give notice as they search for cheaper, better digs. Next, longer-term tenants who locked in low rents thanks to rent control will pop their heads up and explore alternate housing options. How long they wait to seize on the opportunity will be, in part, related to how good a deal they currently have.

The sale market is experiencing the same dynamics, but with its customary time lag. Transactions are down, inventory is up and buyers are pulling back, hoarding cash. Prices are yet to come down materially, but price drops are up exponentially compared to a year ago. Sellers are getting jittery, as well they should.

Staring contest, stalemate, face off. There are many ways to describe what our market feels like just five months before we elect a new president, but they all tell the same story: It’s now only a matter of time.