Welcome back to my newsletter where I give you an insider's take on real estate — with a special emphasis on where I sell: San Francisco! Here, our winter storms have brought a green hue back to the hillsides, and given our city a much needed bath! With the sun shining, I think these winter days are some of our most beautiful.
 
 Let's dive right in...
 
How Did We Get Here?
 2022 started stronger than any other year in SF real estate (looking as far back as 1990) even in the midst of the Omicron surge. In the first two quarters of this year, the median home price here rose to an all time high of ~$1,900,000, which is 6% more than the first two quarters of 2021. Then, as the pandemic freeze thawed and people began needing and buying more, the supply chain slowed, making goods more scarce and expensive, Russia invaded Ukraine nudging gas and food prices way up globally, and global inflation and potential global recession fears sunk in.

It's Complicated
 Even though the US economy continued to show resilience, with a super strong jobs market and higher than expected GDP growth, inflation had to be brought under control. The Fed raised interest rates from near zero at the start of 2022 to nearly 4.5% to combat inflation, including Wednesday's rate increase. That, along with other economic policies and happenings, appears to be working to bring inflation down — the latest numbers show inflation fell to 7.1% last month — dropping for the fifth straight month, and beating analysts' expectations. The Fed said Wednesday they would ease their rate increases due to the deceleration, but they will likely continue to raise rates until inflation is more securely under control. The supply chain is beginning to flow again, according to this NYT article from this week, used car prices began declining in October, and furniture and apparel prices are declining meaningfully, too. All of this is good news for the overall US economy, and analysts now predict 3% inflation by the end of 2023 (they had wrongly predicted inflation would be at 2.5% this year, so there is room for error here — who could have predicted the invasion of Ukraine!?). But zeroing in on SF, it's a bit more complicated.

Waiting For Godot
 Our housing market contracted, and our median year over year sale price in November was down 12% (more market stats here on my website). Like most housing markets, higher interest rates are driving home prices down. Some buyers have completely moved to the sidelines, feeling priced out of the market now that monthly payments on a 30 year fixed mortgage have almost doubled versus last year's all time low rates. Other buyers are being extra cautious, trying to time the bottom, waiting for Godot so to speak. Sellers are being cautious where they can, too — if they can wait to sell during this rough patch, they have been, leaving inventory crunched and buyers opting to wait for more inventory to come on the market.

Profits Over People
 All the good economic news about inflation declines, supply chain momentum, all time low unemployment, better than expected GDP growth, combined with a stock market rally would normally elicit positive predictions about next year's housing market. But not so fast.
 
 Even though tech accounts for only 2% of the US economy, the recent tech layoffs are yet another psychological blow to buyers here. Tech companies on the whole, just like many corporations throughout the US, are pulling in record profits. But unlike many of their non tech counterparts, tech grew at an incredibly fast clip during the pandemic and has recently felt advertisers and customers pull back, bracing for a potential recession and economic headwinds. Thus, too, the tech companies have decided to batten down the hatches in the form of headcount reduction — aiming to keep those shareholders happy. Meta's ~11,000 layoffs, for instance, reflect almost exactly the number of workers it added in 2022 alone. I expect more tech layoffs in 2023, as companies try to placate investors, but it's not yet the sign of a meltdown.

Tied To Tech
 In some ways, San Francisco real estate and Bay Area tech behave very similarly. They achieve extreme highs relative to their counterparts in other markets making them seem overvalued and precarious, especially to those on the outside looking in. And so, when the market weakens, the lows feel really low, when in fact they are in some ways simply coming back into balance. Home prices here now look much like they did in 2018 and 2019, before the heavy pandemic gains.

Buyers Are Starting to Buy Again

And, all of a sudden, in the past couple of weeks, I'm seeing buyers make moves. Inventory that has been on the market forever is going pending. I just helped buyers who have been looking for months win a beautiful home against two other offers — the home ended up going about 12% over asking. The appraisal came in a little OVER the offer price. Looking at history, San Francisco home prices won't stay put for long. After the 2008 crash, which was much more serious and deep than what we are experiencing now, the market here started to recover strongly in 2013 — if you bought at a high in 2007 or 2008, for example, and you held your home for 5 years, you ended up doing more than OK. 

Good homes in good locations here will always do well. Buyers will always come off the sidelines to compete for them it seems. We don't know anything else for certain about the future of our real estate market, except that competition and prices are lower than anytime in the recent past — AND, we don't know for certain how long that will be true. As for current mortgage rates, my trusted source says rates are at ~4.5-4.65% with relationship pricing, and ~5.125-5.25 for non relationship ARMs. Not so bad, if you realize we will likely never again see rates as low as they were 18 months ago.
 
Look Into My Crystal Ball
 Of course, the market could get worse. Many pundits predict a hard landing from the Fed's continual rate increases, and many are even foreseeing a deep recession and/or stagflation. I am preparing clients for more market volatility in 2023, and also hoping for the more optimistic outcome predictions. I don't have a crystal ball of course, but after 15 years of selling real estate here, and being among the top 4 home listing agents in the City, I "do as a wise (wo)man would and train for ill and not for good."
 
 I am now headed, with my family and our sweet dog, to the snow for some much needed recharging. I am looking forward to being surrounded by mountains and trees and wildlife and stars and sky. I have some great books, some snowshoes, and some plans to be with friends and family. Just the best! I hope you have some good plans, too.
 
As always please don't hesitate to reach out with any question or need. I always look forward to hearing from you!