San Francisco Real Estate Report January 2023

SF Buyer’s Market

We are now in the best Buyer’s Market in SF in thirteen years!

According to the most recent Case-Schiller House Price Index for San Francisco, we are now in a real estate market with the best buying opportunities since 2009. As we are all aware, San Francisco rarely turns into a Buyer’s Market or offers wide buying opportunities. Historically, when there is a slight drop or pause in price appreciation, it allows the market to ‘Catch It’s Breath’ and poises it for the next long-term increase in property values, and that is the market we are in now. A quick glance at the Case-Schiller graph, illustrates the long-term price appreciation of home values in San Francisco. Remember, Real Estate is a long-term investment and a key component to wealth creation.

US Inflation Falls Six Consecutive Months

Inflation has fallen nearly 28% since June!

On Thursday, the annual inflation rate in the U.S. slowed for the sixth consecutive month, to 6.5%, lower than exceptions! While this is still considerably higher than the Federal Reserve Bank’s (Fed) target inflation rate of 2%, it is trending in the right direction. This is a direct result of the Fed’s unprecedented Interest Rate increases. After four consecutive 0.75% interest rate increases, at their last meeting in December, the Fed only increased rates by 0.5%. This has had a couple of impacts on the economy and the real estate market.

Getting inflation under control has been the Fed’s biggest concern. The impact of increased interest rates has created the current buyers market, as some buyers have left the market due to higher mortgage rates, leaving many sellers searching for a qualified buyer. While interest rates are higher, over the last few months we have seen many sellers make concessions, such as price reductions or rate buy-downs to attract buyers. Some of these options are more lucrative for buyers than others, and negotiating the best option is important.

Many successful home buyers are opting for ARMs (Adjustable Rate Mortgages) instead of a 30-Year Fixed Rate Mortgage due to the difference in interest rate, sometimes as much as 1%. The impact on monthly payments, coupled with the realization, they most likely won’t be in the home for thirty years, has buyers asking themselves, “Why pay more in interest?”.

Several readers have asked me recently what impact the recent layoffs in the tech sector will have on our local market. I think there will be little to no impact on our SF real estate market.

Currently in the US there are approximately 10.5 Million job openings and 5.7 Million unemployed people, according to the Bureau of Labor Statistics.

While it is very difficult for anyone, and their family, when someone is laid off, there are still considerably more jobs available, than job seekers.

Two headline grabbing examples: Meta (Facebook) employs 69% more people than it did just three years ago, and Salesforce an additional 47% more people. Also, many companies in the Tech sector made hiring decisions on their projected growth, based on increased demand during the Pandemic. Currently the San Francisco unemployment rate is around 2%.

SF Fastest Growing Economy

CNBC recently reported that San Francisco is the fastest growing economy in the US!

The economy of the U.S. is Tech, and the epicenter of the Tech industry is San Francisco! This makes me quite ‘Bullish’ on the long-term health of San Francisco’s employment, economy and, therefore, real estate market.

Conforming Loan Limit Increase

The Conforming Loan Limit has increased 12.2% to $1,089,300 for San Francisco and seven other Bay Area counties.

These mortgages can be sold to Fannie Mae and Freddie Mac and offer the lowest rates available.

Previously, mortgages in this range were classified as Jumbo loans, with higher interest rates and tighter qualification requirements. What this means for today’s home buyers, is they can get the best mortgage rate on a purchase increasing their buying power! This is big news!!

Additionally, while the recent jobs report saw a higher than expected increase in hiring in December, wages were lower than anticipated. This coupled with declining inflation caused mortgage rates to decrease last week, and we saw an increase in mortgage applications.

My Forecast and Expectations

While I’ve recently heard some in the mortgage industry predict the Fed will only raise rates by 0.25% at their next meeting February 1st, my expectation is the Fed will once again raise rates by 0.5%. Why? Simple, Inflation! Inflation, while moderating significantly, still remains stubbornly high for the Fed’s liking. Federal Reserve Chair Jerome Powell indicated recently, the central bank would slow the pace of rate hikes, however they would continue with their increases, albeit in smaller increments. It’s possible, sometime towards the end of Spring or early Summer, we may see the Fed pause on rate increases.

Mortgage rates are forecast to be less volatile and stabilize just below 6%, according to National Association of Realtors (NAR) economist Nadia Evangelou. Rates have already dropped by 0.75% off their high in mid-November.

The current inventory levels in San Francisco continue to remain stubbornly low. The reality of the situation is, there simply are not enough homes to buy. Currently there is about a six week, or 1.4 months, supply of homes for sale in San Francisco, for a total of 672 properties on the market (Click to see inventory levels throughout the year).

To put that in perspective, last January, there was 3.6 Months supply of inventory, for a total of 1,684 properties.

This lack of available homes for serious, qualified, home buyers to buy, could potentially see the San Francisco market, in some areas of the City, return slightly to a sellers market, as the Spring ‘Selling Season’ kicks into high gear. We’ll have to keep an eye on rates. That being said, most real estate economists, are forecasting a moderate increase in home sales prices in 2023. Instead of the unsustainable 20%+ price appreciation we had seen in some sectors.

Based on this information, and my expectations of several factors that will effect our market, I believe we will have a very healthy market this Spring in San Francisco, albeit more tempered and stable. Remember, in SF, a Buyer’s Market doesn’t last for very long.

I know this is a long market report (thank you for reading this far…), and there is a lot of information to absorb here. If you have any questions about how any of this may impact you, your friends, or your family, please feel welcome to contact me directly at anytime.

In closing, I'd like to say, Thank You!

For 2022 I have once again received San Francisco Magazine’s Five Star Real Estate Agent award! This recognition is based on anonymous surveys of our clients. According to Five Star Professional, many agents receive this award once or twice; our receiving this award eight times places us in the top 1/10th of 1 percent of real estate agents! Thank You!

Regards,

Reid Rankin