Welcome to my newsletter where I give you an insider's take on Real Estate, with a special emphasis on where I sell — the place that was just named the #5 Best City in the US in Conde Nast Traveler's 2023 Readers' Choice Awards: San Francisco! Here in SF, we are just now settling into our October summer, and it's quite balmy and beautiful.

Yo-Yo Economy 

2023's US economy has been so up and down, it's nauseating. It started off with a bang, hit the snag of bank failures, was then seemingly destined for a soft landing vs recession, weathered more Fed rate increases, and inflation continued to fall into the low 3%'s. Despite falling inflation, September and October are not turning out to be the macro-economically strong fall months we were hoping for: interest rates hit their highest point since 2000, stock markets are well down from summer, the price of oil is climbing, federal student loan payments resume this month (though Biden just this week forgave another $9BN in student debt), and, although we just barely avoided a government shutdown, there is chaos in the now Speaker-less House of Representatives. 

Tug O' War

The SF real estate market has had the same unsettling topsy turviness as the general economy, but, in this case the movement is more like a tug of war. And, of course the war is between buyers and sellers. The buyer pool is shrunken, largely turned off by mortgage interest rates in the 7.5% range, and the seller pool is equally shrunken due to sellers sitting on mortgages in the low 3% range. Sellers are only selling when they have to, or really want to — moving for jobs, greener pastures, growing family, retirement, etc. So, inventory is at an all time low. And buyers are only buying when the house checks all the boxes and is pretty much perfect. So, all the good houses get pounced on with multiple offers over the listing price. 

Prices Hold...For Now

Every house I put on the market this year sold swiftly and for over the list price. In many cases shattering the seller's already high expectations. Sellers weren't always ecstatic, though — I found that even when the sale price was strong, sellers had a hard time letting go of price targets from early 2022 — before interest rates started rising. And, right now as inventory increases as it typically does in the fall (still off from previous years), homes are spending more days on the market, and we're starting to see more price reductions as agents try to empty the inventory before the holidays. We are certainly not seeing the buying frenzy we saw in the housing market early last year before the Fed started raising rates, but we are also not seeing home prices drop precipitously. I just wrote two offers for buyer clients both of which were competitive, and over asking. See the latest neighborhood stats and more on my website.

More Hurdles

Buyers keep hoping for more inventory, and sellers continue to sit comfortably in their homes with low mortgages, waiting for a more opportune time to sell. The issue with waiting to buy is you're likely missing out on building equity, which might ultimately offset the higher interest rates, especially once you're able to refinance. On the flipside, the sellers having the hardest time right now are still condo owners, and 2BR home owners — people need more space (not shared) and more rooms to work from home post-pandemic — and also those who purchased during a market high point within the last five years. Surprisingly, we still see some sale price increases on homes that were purchased between 2018-2021 and re-sold in 2023 — but the stars have to really align: the home must be in near perfect condition, staged beautifully, 3BDRs+, desirable location, etc. 

If a home has an older electrical system or roof, buyers will face an additional hurdle: securing insurance. Insurers are requiring upgrades to outdated electrical and roofs as a condition of insurance. This means that buyers are writing insurance conditions into offers, and heavily weighing costs of potential upgrades when deciding whether to make offers. This creates more risk and headache for sellers, as well.

The Crystal Ball

Home prices could still increase moderately in 2024 if the current tug of war continues. Obviously, there are several important factors that could sway the market in one direction or another, and it's hard to predict with all the volatility what will happen with: mortgage rates, the potential for a recession, lending standards, existing home inventory, and the rent/buy calculus.

Rents are going up here. I had 30+ prospective tenants come and look at a vacant 1BR unit in my Noe Valley apartment building, and amazingly strong candidates vying for the apartment. In fact, if you read investment bank advisories, the recommended real estate investment right now is multi-family properties. These have been mostly distressed/difficult to sell since the pandemic. I wonder if we will see an uptick in prices for multi-family properties, as more and more people stay priced out of the real estate market and renting becomes more competitive.

Oh, and then there's AI. SF is home to 11 of the top-funded companies in the sector, according to Insider. Marc Benioff, CEO of SF based Salesforce, proclaimed SF is "becoming the #1 AI city in the world." This could have an impact on our housing market in the near future as AI workers flock to live where it's all happening.

Doom Loop, Shloom Moop

As much as there is going wrong in SF right now, I just can't and won't throw the city under the bus. I believe in it too much. Of course our purely commercial downtown has to reinvent itself — this was the case before the pandemic! 

I loved this answer a Compass analyst gave when asked about SF's doom loop: 

"It is worth noting that the San Francisco and San Jose metro areas, which together contain the 6 inner-core Bay Area counties, rank at or near the top of U.S. metro-area rankings for educational attainment, household income, health and life expectancy, real estate values, venture capital received, patents held, population diversity, and world-class universities. The Bay Area is also commonly featured on lists of the most beautiful metro areas in the world. Though San Francisco and the Bay Area clearly face some serious challenges - as indeed they have, in various forms, since Gold Rush days - a grim, downward spiral into socioeconomic catastrophe is neither inevitable nor, frankly, remotely likely." 

Bravo. Also, I am convinced this city will be the safest place to weather (no pun intended) the climate change threats most places are facing. Think about it.

Thank You & Life

Professionally, I am still among the top 10 individual listing agents in the city for single family home sales. So, thank you for always recommending me and singing my praises! Personally, I am working on sending another kid (the last one!) off to college — if you can believe it. On the one hand I am excitedly drafting a list of things I want to do with all the spare time that's coming my way, and on the other I am asking my 17 year old for daily hugs, and relishing any words he deigns to speak to me. 

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