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Real Estate

Buyers aren’t buying this buyers market

Time to buy or time to bide your time? Photo: Jason Nin-Pixabay

San Francisco homebuyers have leverage for the first time in 14 years. Ironically, many buyers are shying away from a market that now seems to favor them. Clearly, buying a home in the city is never easy, even when the stars seem to align. 

“September was the start of a correction in our market,” said David Cohen, founder of City Real Estate. “Some people might say it started earlier, but in September the stock market really began to fall, there was a big seasonal jump in inventory, interest rates started to climb, and home values really began to drop.” 

According to the San Francisco Association of Realtors, the median price for a home in San Francisco in September was $1.4 million, down from $1.6 million — the all-time high recorded in April of this year. That’s about a 13 percent decline in just six months.

“This decrease in home values could last a minimum of six months, or a maximum of 18 months, probably somewhere in between,” said Cohen. “And when I say decline — it’s not a straight line. You’ll have three months of price decline, and then one month of up, but the overall trend will be negative. In fact, right now, we’re selling condos at 2014 and 2015 prices.” 

MORE TO GO

Cohen thinks that home values will likely drop an additional 15 percent from where they are today. But he said it’s relative. For example, the SOMA neighborhood is already down about 25 percent from its peak. Does it have another 25 percent to drop? Cohen says he doesn’t think so, but a lot of that will be determined by whether tech companies hire people once again to work in their offices. 

Even as home prices drop, many buyers seem to have walked away. Some are waiting for prices to hit bottom. Of course, that is easier said than done — as those who have tried to do this in the past will tell you. 

Other buyers are worried about their own finances. A lot of people are tied to tech, and the technology-focused Nasdaq Composite is down significantly. All of this means people have less money with which to buy a home.

What’s more, interest rates have climbed dramatically.

This isn’t just a local problem. Redfin reported in early November that homebuyers across the country had lost 29 percent of their purchasing power since rates bottomed out in early 2021. Home prices were still elevated due to low supply, but early demand signals had already weakened sharply.

Early indicators of home buying demand showed an accelerated pullback as mortgage rates shot up to a 15-year high. Home tours fell 7 percent and mortgage purchase applications declined 13 percent. Redfin’s Homebuyer Demand Index, a measure of requests for home tours and other home-buying services, fell 6 percent in early November to its lowest level since mid-June, when mortgage rates first jumped toward 6 percent. 

Cohen argues that the saving grace is you don’t have to pay those rates forever. Presumably at some point, you’ll be able to refinance at a lower rate. With that in mind, he says if you find a place that has good value, you should jump on it. If you buy low enough, you will compensate for the higher interest rate — in part because if you buy something at a lower price, your property taxes will be lower.

San Francisco’s real estate market was simply overheated in 2021 and early 2022. This correction was probably inevitable, though interest rates and economic uncertainty have clearly contributed to the market’s slump in home sales.

STAY OR GO

It is interesting to note that a recent San Francisco Business Times article includes a chart that shows the nation’s biggest out-of-state county migration patterns. The top 15 regions are listed. San Francisco is not among them, and that would seem a bit of a surprise. Los Angeles, the District of Columbia, Cook County (Chicago), and New York lost the most households, in that order.

San Franciscans, by comparison, seem to be staying put.

During the months of November and December, the real estate market begins to slow down, regardless of market conditions. By January, things are so quiet many real estate agents become convinced they may never sell a home again. That anxiety is likely to be more pronounced this January, as the frenzy of recent years appears to have truly dissipated. 

But Cohen is convinced San Francisco will bounce back, as it always has.

“The next big thing will catch fire here,” Cohen said. “Maybe it will be artificial intelligence. Or biotech. It will be some game-changing innovation by one of these Berkeley/Stanford grads — someone who wants to be in the Bay Area. The next thing you know, everyone will be clamoring to come here for jobs. And then it starts all over again.”

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