San Francisco reprises gold rush in real estate

Property: The city by the bay and other areas in the West are finding that the technology industry is leading to housing prices beyond the reach of many residents.

July 30, 2000|By Todd Richissin | Todd Richissin,SUN NATIONAL STAFF

SAN FRANCISCO -- The price for the two-bedroom condominium on Russian Hill was $699,000, and Jon Dommes thought he had both the strategy and the bid to buy it.

He would offer $126,000 above the asking price, a bid of $825,000. He couldn't possibly lose.

But he did.

Someone else bid $900,000.

For a 1,500-square-foot condominium -- with little in the way of a view.

In a good neighborhood, not a great one.

"I think," says Dommes, "that they laughed at my bid."

That's how the San Francisco real estate market is these days, though only the sellers are laughing. While the city by the bay has long been among the nation's more expensive places to live, prices in the past two years have made finding a home -- affordable or not -- a wrenching experience.

Consider: The $900,000 condominium that Dommes lost was much like one that recently sold on Churchill Street in Federal Hill, prime real estate in Baltimore, with glimpses of the Inner Harbor. Only the Baltimore property sold for about $275,000.

San Francisco real estate is not alone in this sellers' gold rush. It is only one of the more vivid illustrations of what is happening to downtown residential property across the country, from New York and Boston to Denver and Dallas.

The spiraling escalation in housing prices is the result of a scarcity of land combined with an explosion of money from the technology boom, and the result has fundamentally altered who's capable of realizing the American dream of home ownership.

In Denver, the high-technology boom is literally raising the roofs off downtown houses. There is no room for people who own homes on small lots to expand outward, and moving elsewhere in the city is a financial hurdle too high to jump, if another house can be found at all.

So they build upward, removing their roofs, adding second and third floors.

And even the tiny houses before the renovations, once selling for less than $20,000, are in the $300,000 range.

Increasingly, government-subsidized housing is helping a small number of very poor people live in these cities while prices are squeezing out almost everybody else, including professionals who were once considered at least somewhat upper-middle class. And affordable housing for the blue-collar class, once the backbone of these big cities, is becoming a distant dream.

"Affordable properties in San Francisco for ordinary working people are unheard of," says David Parry, a real estate agent with McGuire Real Estate. "The reason for it is simple -- there's just too much money chasing too few houses."

This year, he's sold seven San Francisco properties, which listed for a total of $5.7 million, Parry says. But together they brought in $7.7 million, meaning that on average he's getting about one-third over listing price.

One listing, on California Street in Pacific Heights, asked for $1.5 million. It settled for $2.3 million. The owner of a condominium in the Marina District listed the place at $649,000. It fetched $951,000.

"In this market it's probably about 80 percent failure for the buyers, maybe higher," he says. "But if you're listing, obviously you can do very well."

Thus, people such as Dommes are placing bids of hundreds of thousands of dollars, as if playing for a lottery jackpot that in saner times was worth less than the cost of the ticket.

Now 32, Dommes has lived in the Bay area most of his life and has become one of the high-technology workers who have made finding a place to live so difficult. In the past year, the median cost of a house in the city has increased by 25 percent to $418,000 caused, city officials and real estate experts agree, by new, young, almost-instantly wealthy buyers.

San Francisco officials estimate the city has gained about 45,000 jobs over the past year, most of them connected to the high-paying, high-tech sector.

"I've been extremely fortunate that way, as far as salary goes," says Dommes, who deflects questions about his income by pointing out that people in his position, selling software, typically make $250,000 a year or more. "At the same time, it's added headaches with traffic, this housing crunch, that kind of thing."

Further pressure on the housing stock comes from south of the city, from Silicon Valley, where people in their 20s and 30s are flocking for jobs, starting up companies and making megabucks in the process. Prices there are similar to San Francisco's, but the younger set wants the urban feel of the city, and their march inside its boundaries is causing tension in a place that has prided itself on its laid-back style.

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