Real estate article after real estate article talks about how unaffordable homes are in San Francisco. A quick look at home prices will tell you that’s the case. What’s more, a recent Redfin report says that buyers need to earn $402,821 a year to pay San Francisco’s typical $10,071 monthly mortgage payment, up 33.6 percent from a year ago.
That is a ton of money, and it got us thinking. Homes are still selling in San Francisco, albeit at a slower pace. Who are all these people buying homes in the city, and how can they possibly afford to do so?
We went to Ron Wong and Mike Tekulsky with Compass looking for answers. They’ve been in San Francisco real estate for years and have seen every kind of market. They work with clients all over the city — sellers and buyers alike.
Here’s what they had to say:
Let’s start with a simple question: Who is buying a home in San Francisco these days?
Ron Wong: Because of pent-up demand, lots of people are looking to buy a home here. And believe it or not, we’re seeing an increase in first-time buyers at open houses compared with the past three months.
Renters are looking to buy because the buy-versus-rent comparison favors buying — rates have decreased now, and rents have had a slight increase — even though rents in San Francisco are still down about 15 percent from the prepandemic high of three years ago.
Current homeowners are very comfortable with their 3 percent or lower loan rates. As a result, they are not as interested in trading up, because if they do, they’re looking at a 5 percent interest rate. We see more sellers in a wait-and-see posture, unless they are moving to another metro area.
How can buyers afford to purchase homes in San Francisco?
Mike Tekulsky: Depending on their down payment, we think buyers need around $300,000 a year in income to purchase a home in the city. And plenty of buyers make that salary here.
They are viewing this as a good time to get into the market with lower prices and less competition. The possibility of seller concessions, contingencies, or more time for the offer process is also appealing.
While there have been recent high-profile layoffs at Google, Microsoft, Amazon, and Salesforce, our record low unemployment still stands below 4 percent throughout the Bay Area.
What do these buyers have in common?
Tekulsky: Many buyers are still working from home, and they want one or two extra rooms to create office space.
Younger buyers getting loans are very interest rate sensitive. Rates were up to 7 percent last year for a 30-year fixed loan. Now they are at around 5.5-6.5 percent.
By the way, top mortgage lenders like Guaranteed Rate are saying that retail mortgage rates will not likely increase more this year, even though the Fed may raise rates slightly more in an effort to control inflation. The experts feel that the Fed likely will not decrease rates in 2023 or 2024.
Do different neighborhoods attract different kinds of buyers?
Wong: Buyers are still very focused on location, especially now that they’re commuting less. I wouldn’t characterize neighborhoods by buyers, but the importance of a home base and local amenities has sharpened. In the past month, two sets of serious buyers have reconsidered an offer at the last minute after reassessing the location.
How do condo and single-family home buyers differ?
Wong: San Francisco is the only county in the Bay Area where condo sales outnumber house sales. For example, there were 3,265 condo sales in 2022 versus 2,426 single family home sales. The median sales price in San Francisco in 2022 was $1.8 million for single family homes, $1.2 million for condos.
We continue to see multiple offers on single-family homes and fewer offers and longer days on market for condos. It seems buyers in every demographic still long for their own homestead, and not shared walls, backyards, and garages.
What about TICs*? Are they still a thing?
Tekulsky: TICs are still marketable. In fact, TIC loans have been around 5.5 percent — lower than other loans, because lenders portfolio these non-Fannie Mae loans. TICs are still a good value, but represent just a small segment of our market.
*TICs are tenant-in-common properties. TICs are joint ownership of a building where each owner has a side agreement to only occupy a single unit although the owners have joint liability and sometimes a shared mortgage.
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