I'm sorry it has been quite a while since I last wrote! My only excuse for not writing sooner is that I have been working non-stop, helping clients successfully navigate this exciting, ever changing market! This is the newsletter where I give you an insider's take on Real Estate — with a special emphasis on where I sell: San Francisco! And, here, while summer temperatures around the globe are in the 90's and above, our daily forecast is always 65 degrees!
Real Estate Roller Coaster
So far the 2022 SF real estate market has been quite the roller coaster ride. Despite the Omicron surge in January, buyers came out of the gate with a vengeance. Tons of pent up demand from late 2021, and whispers of soon to be rising interest rates lead to lines out of the doors at open houses, aggressive overbidding, and a huge surge in appreciation and sale prices here.
Turns out, the broader economy was overheated, too. Historically low unemployment, high consumer spending, and a heavy demand for goods, met with a Covid-snarled supply chain that could not keep up. Companies raised prices, because they could, and inflation rose at an alarming rate. Gas and grocery prices shot up, and the government and the Fed began to aggressively target inflation. The Fed raised interest rates in an effort to cool off the economy and to try to balance the competing forces that drive inflation. And, even though the Fed's action appears to be working — gas prices, for example, have dropped meaningfully — the rate of inflation actually went up in June. Unlike the stock market, and more like home prices, the real rate of inflation is hard to read in the moment. Economists predict July inflation numbers will be lower, and today's jobs numbers showed that employment continues to rise — the Fed may feel emboldened to continue to raise rates. Increased rates have pushed many potential home buyers to the sidelines as they worry about higher mortgage payments, getting less home for the money, and a potential recession on the horizon.
Market Correction
I do have to say the mortgage rate worry has been a bit overblown. First of all getting a 30 year jumbo mortgage in the high 2% 's was so lucky. Anyone who locked that in just happened to be buying a house at the right time. The rates we saw in just 18 months ago represented an all time low, and we will likely never see those rates again. Now I’m told by my go-to mortgage broker that a 30 year fixed mortgage around 4.25% is standard with good credit and 2-% down, and ARMs in the 3%’s are gaining popularity, as many buyers here plan to make large principal payments on their ARMs with bonuses or stock grants. 4% 's is hardly "high." My first mortgage in 1998 was at 7%. Yes, rates have almost doubled recently from their low. But going from super low, to still very low should not take anyone out of the market. And, my understanding is that mortgage interest rates actually went down over the past couple of weeks, that banks had predicted the rate increases and baked them into their payment estimates for buyers.
However, from the decline in buyer activity you would think rates had hit the double digits. There is definitely a cooling in the market here, with slower open house activity, some homes staying on the market longer, and more price reductions. It took a few months from when the big economic changes began, but the high year-over-year appreciation rates of recent years are now dropping fast in Bay Area markets – and in San Francisco, the rate turned slightly negative in June – though the degree of any actual, longer-term “correction” to prices, if it occurs, remains to be seen.
There is still tremendous wealth here, and many properties that are well priced and well prepared are selling swiftly and still commanding top dollar. Two listings that I put on the market after the 4th of July, both in Noe Valley — one listed at $2.5 the other at $3.395 —sold and are pending respectively for $500K and $600K over their list prices, receiving multiple offers. But then, in the same month, I also helped buyers win a home in Cow Hollow, where they ended up paying ~$200K below the list price. After one of the longest and most dramatic upcycles in history, the SF market is finally cooling. (More stats and data on the market on my website here.)
Catching A Falling Knife
Most economists predict a correction — a flattening out — vs a recession. Market corrections over the last four decades (aside from 2008 which was precipitated by tens of millions of households being talked into loans they could not afford, forcing a frantic selloff during a recession — which is definitely not the case today!) typically ran from a simple flattening in appreciation, to price adjustments of 5% to 10% — relatively small compared to the appreciation rates which preceded them.
It is far too early, with far too many factors at play, to make predictions. However, for buyers waiting on the fence thinking they can time the market's lowest point, a word of caution: many a potential SF buyer has been burned waiting for the bottom, trying to avoid being sliced by the proverbial "falling knife." San Francisco's real estate market doesn't tend to fall the way other markets do, and its inevitable rebound often leads to regret for buyers who tried to play that game.
Think about this: if you bought a house in 2007 or early 2008 you felt devastated by the crash of September 2008, and horrified as you watched prices fall and the recession that ensued. However, if you bought that house prepared to weather at least a few years of some storms (which would be foolish if you bought and did not plan for this), you were sitting pretty in 2012 and beyond when the frenzy to buy a home in SF sent prices and appreciation skyrocketing.
We actually know that now is a good time to buy. Will it still be a good time to buy in 6 months? Who knows. Most people who own homes here and who do not need to sell at the moment can comfortably hold and wait for more solidity in the market. Their mortgages are at ~3% 30-year-fixed, their homes provide what they need right now, and they can comfortably stay put. Because of this, there are fewer highly desirable homes on the market. This creates a glut, as the shrunken buyer pool holds out for more and maybe better inventory to hit. It's a bit of a vicious cycle.
Pandemic Learning
One thing we know for sure is that during the pandemic, “home” became the top priority for many. Because they were now spending so much time at home, people equated home with their own happiness, and they focused intently on making their homes better or changing to a better home entirely. For many, that meant more space to accommodate a work-from-home lifestyle; others wanted more private outdoor space for their children and themselves to safely enjoy the fresh air. Convenience to walk to parks and green space, and proximity to businesses that weren't boarded up became more important. Hot tubs, outdoor furniture, and contractors were almost impossible to secure in San Francisco for the past two years. And, we saw a sharp rise in luxury ($3M+) home prices — the real estate tier that performed the best in the past two years. And the luxury market here is still pretty competitive!
How will the new way of working (from home) brought on by the pandemic continue to affect our local economy, now and in the long run? While some Bay Area companies, like Apple, have required their employees to come back to the office at least a few days a week, SF based Salesforce just agreed to lease more of its office space, listing more than 40% of its 43-story tower for lease — another blow to the already suffering downtown. I read that SF has the lowest number of employees who returned to the office since the pandemic of any of the major cities in the country. It doesn't surprise me. SF is always on the forefront of change. The city is exploring ways of attracting businesses, tourists and workers back to downtown. We're going to figure this out. It may mean big changes for downtown, and change can be difficult and scary — but if anyone can do this successfully, I believe we can.
Ch-ch-ch-changes
It's tricky navigating a changing market. And, that's all I have been doing (rather successfully if I may say) since 2020. Thanks to you and your support, I am among the top 5 listing agents in all of SF (based on mls single family home sales), and among the top 10 overall agents citywide. My focus on my clients and treating their needs as though they were my own has brought so much gratitude from the people I serve, and has brought success to my business. Over the past two years, I have turned down business, recommending my clients hold if they can during certain periods of the pandemic where they otherwise may have lost money. I have turned on a dime to help clients who were suddenly moving put their house on the market in two weeks time. As the markets shifted beneath our feet in recent months, I have given frequent, up-to-the-minute reports and price recommendations to craft the most successful strategy for clients with upcoming listings in this unsettled market.
And now, I am headed on a much needed family vacation, and to take my oldest child, Ava, to her first year of college. I am so excited for her, and of course I am also tearing up writing this, thinking about her living apart from us. Luckily she will still be somewhat close by, in southern California. And, while I am looking forward to this new chapter for both of us, we are not yet empty nester's (or "free birds", as some of my friends advised me is the new term). Luc is going to be a junior in high school this fall. So, we'll still be steeped in the wonderful world of parenting teenagers! It has seriously sharpened my negotiating skills.
As always please don't hesitate to reach out with any question or need. I always look forward to hearing from you!
