Welcome to my newsletter where I give you an insider's take on Real Estate — with a special emphasis on where I sell: the amazing San Francisco!  And, here, after the atmospheric rivers earlier this year, our hillsides are lush, and our City streets got a much needed natural spring cleaning.

Jumping January

2023 so far has been hard to pin down for San Francisco real estate sales. In January, after the steep drop in the market in the second half of 2022, which corresponded inversely with the Fed's sharp interest rate increases, suddenly it seemed buyers were back. A Liberty Hill home I listed in mid January received eight offers and sold for more than $300K over the list price. Mind you, the list price for the home was lower than the sellers and I had originally planned when we set it in the first part of 2022. So, while the home surely would have sold for more in the early part of 2022 than it ultimately sold for in 2023, its swift, competitive 2023 sale surprised us (me, the sellers, other agents, other buyers), and the ultimate sale price was definitely more than it would have been at the end of last year. There were barely any other homes on the market competing with us. But also, buyers seemed to be seeing a light at the end of the rate increase tunnel. It seemed at the time that rates might soon stop going up, and might even go down, and then sellers might again be in charge. So, buyers emanated a renewed sense of urgency at the beginning of the year.

Throttling Growth

Everyone was tittering: was December 2022 really the bottom? It might have been, perhaps, if the job market wasn't so great, and the economy wasn't so hot, and if inflation had been going down more rapidly. It seems the best way we have to combat inflation and fears of a wage-price spiral is to artificially throttle growth and make the 99% gasp for air. Make it too expensive for people and businesses to borrow, so that they stop spending, so that businesses feel they need to layoff workers, so that people get scared and pull back, so that millions lose their jobs, so that we are in a recession, so that inflation goes down. So that businesses don't feel pressure to raise wages in order to keep workers, and then raise prices to pay for the higher wages they're paying, in order to keep their profits, as they have been, at the highest levels in history. 

I'm no economist, but watching the Fed try to stabilize prices, first on gasoline and food —whose volatility arose out of a once in a generation global pandemic, supply chain issues, the war in Ukraine and other consumer spending shifts —by ultimately causing millions to be out of work, seems unimaginative at best. It turns out that in February, while the Fed was focused on how to pour more cold water on the economy, a problem at the banks, which the Fed was also supposed to be regulating, was brewing just beneath the surface. The Fed raised rates another 1/4 percentage point on Feb 2nd, and then it was rumored that it might raise rates more aggressively than expected in March, and... boom!

Bank Bust

The collapse of Silicon Valley Bank on March 10th hit close to home. Its investment strategy didn't account for rising interest rates and cash strapped startups pulling their money. Then, word spread that the bank was having liquidity issues, a good deal of its 93% of uninsured depositors began to panic, and a bank run ensued. SVB's failure, which is still being investigated, sent ripples through the banking community. First Republic and other regional banks' continued instability is unsettling. And, ta da: we were suddenly navigating a banking crisis. Would this finally be what squelches too high inflation? Maybe. But, also last Friday's NYT headline: Big Banks Report Bumper Profits Amid Industry Turmoil. Again, the rate increases seem to be hurting everything except for corporate profits. 

The Federal Reserve Bank of  NY President said this week to Reuters that inflation, now at 5%, is still too high, and that the Central Bank would likely raise rates again another quarter point in May. He expects the rate raising to stop after May's increase, inflation to hit 3.25% by the year's end, and to hit the 2% inflation target in two years — all while avoiding a recession. He admits the job market is cooling, that “...conditions in the banking sector have stabilized, and the banking system is sound and resilient. But he added the troubles will likely make credit more expensive and harder to get, which will in turn depress growth." This credit tightening has already started to impact small businesses.

Vicious Spiral

And the continued rise in rates has surely had a large impact on SF real estate. The most notable impact on our market right now is that single family home inventory is incredibly low. Would-be sellers are reluctant to sell. They are sitting on 3% 30 year fixed mortgages, and while it would be nice to trade into that bigger house, move closer to the kids' school, or maybe head to Marin, they're in no hurry. There is economic uncertainty, new mortgages are more expensive, the buyer pool has shrunk, and appreciation declined for the first time in years last year. Surely, they're thinking, waiting for a clear seller's market will yield better results. And, anyway, there's really not much on the market to buy! Another vicious spiral.

In some cases it is smart for sellers to hold if they can. Homes with flaws (like a challenging location, or no garage, etc) won't do as well with the pickier crop of buyers. And condos have been flooding the market since the start of the pandemic, when people suddenly needed more space, and wanted less of it to be shared. But solid 3+ bedroom homes in desirable locations are selling very well. All of the single family homes I have sold so far in 2023, and even one Noe Valley house-like condo I listed in March, went for well over the list price in multiple offers, and three out of five sold for all cash. Priced carefully, and prepared meticulously, these homes seem to sell very successfully — helped by the fact they have almost no competition. I heard that one single family home's agent gave away 25 disclosure packages last month. It was a nice house, but in a market with more inventory, it would likely have made a much smaller splash. 

A 'Mini' Seller's Market

So, ironically, here, the current market can be good for certain sellers. Buyers are out there stepping up to compete, and also in some cases - especially with condos and multi-unit buildings - getting great deals. Will it get better for sellers before it gets worse, I don't know. I was so bullish in January. Before the SVB crash. Before the Fed threatened to raise rates by a half rather than a quarter point in March. Right now, I will say if I wanted or needed to sell, and I owned a great three+ bedroom house, I would likely do it. Who's to say the market won't go further down as we get nearer to the end of the year, and how long could it potentially stay there? In today's news, there is heavy chatter about an impending recession. 

As always please don't hesitate to reach out with any question or need. I always look forward to hearing from you!