The Monthly Digest, Oct. 2023
Mike Basham
@keepitrealsf??Tipster | REALTOR? & Broker/Owner | New Developments, Renovation
It’s that time once again when the late summer listings surge turns into languishing inventory, and motivated sellers compete to beat an imminent year-end slowdown in purchase activity. For buyers, the opportunity to strike exceptional deals is peaking. Those in the know have a short window to take advantage of seasonality and relatively low demand before the spring selling market begins.
This should absolutely not —?I repeat NOT?— be construed as part of a broader trend. To the contrary, there's good reason to be cautiously optimistic that next year will?continue to bring the year-over-year median home price growth that we've seen these last two months. At the very least, SF's median price will all but certainly end the first half of 2024 higher than it began, as it has each of the last 20+ years (+12.28% in 2023; +26.09% high in 2015; +4.04% low in 2008; +14.36% average since 2003).
More on this in a minute. But first... ?
The?SF Chronicle?recently featured?my expertise?on new highrise homes in the Downtown & Mid-Market areas. As those in my inner circle know, I?take great?pride in being?a trusted?advisor and thought leader?—?far above and beyond the business of sales. Any opportunity to flex my 15 years of local experience?in Real Estate?and my BA in Economics... I am there. for. it.?(Go Bears!).?Click?to read. ?
And now back to the show...
Mortgage rates are squeezing both supply and demand. Depending on the market segment (ranging from?entry-level to?ultra-luxury) and other factors from one neighborhood to another, the net effect may be profound or hardly perceptible; price-sensitive buyers and areas saturated with like-kind inventory are affected most.?The result: generally, more buyers are paying all-cash than in recent years past?and home prices are largely where they were 4-6?years ago.
San Francisco is on track for the lowest annual?number of home sales in decades, down approximately one-third from 2022 and at half of 2021 levels. Homeowners who do not have to sell are staying put.?That said, comparing 2023 and 2022, the number of?listings canceled?as a percentage of?listings sold?is holding steady. It appears to be the setup for a virtuous cycle where demand outpaces supply, leading to fewer canceled listings, accelerating?price growth?and?more inventory selling faster.
Pro Tip: If you're on the fence about purchasing right now, consider what a 10-15% increase in prices by next summer?looks like for you without any appreciable drop in mortgage rates. That's a very likely data-supported probability. Or, worse, rates do fall (we're talking to 5.5% at best, not back to 3%) and unleash overwhelming demand for lagging supply, and 2015-style bidding wars skyrocket prices much higher. ?
With regard to?new construction specifically, there's an even tighter constraint on inventory — and once it's gone, it's gone. Just three major condo developments debuted this year (none of them have more than 50 market-rate units), and it looks like there may?be only one in the pipeline for 2024. Nine of?the 18 projects?now selling, which?I track closely, are at least half sold (two-thirds of those each have only?very limited inventory?remaining). With few exceptions, the buildings still mostly unsold are in the Downtown & Mid-Market areas.
More often that not,?buyers who are attracted to brand new homes want?only?a brand new home. As the best units get scooped up and the market continues to improve, they should expect to have much less negotiating power. This is true of any building anywhere in the city, including?those constituting the "luxury condo market" which —?to clarify the?SF Chronicle?headline above — is not cooling but rather?has already?cooled according to purchase?activity:
The sage investing advice of Warren Buffett seems fitting for this moment:?be fearful when others are greedy and greedy when others are fearful.
Lastly, it's worth repeating?that price reductions do not necessarily equate to a declining market. Sellers are allowed to aim?for highest profit, and later adjust prices?if they become more motivated to make a deal. In the end, it's a willing and able buyer that determines value. (Similarly, sellers can?list a home?for some egregiously undervalued amount,?receive dozens of offers and sell at 500% over asking. It reveals nothing about?price?trends, whether the market is?hot or cold, or how great their agent may be.)
?? CONTINUE to off-market and coming soon listings, the month's top headlines, and new development insights
You can reach out to me directly to get real-time metrics and my take on the market any time.?I am always honored to be introduced to friends/family to discuss real estate and investing in the Bay Area.?Your referrals are appreciated.
Onward and upward,
Mike Basham
DRE # 01855968
Senior Vice President at Bank of San Francisco
1 年Great info Mike! Thanks for the share.