Last time around, I talked about declining inventory levels in the San Francisco home-buying market. In what’s normally the Spring peak home-buying season, supply had dropped over 50% yr-on-yr. The question everyone is asking is how will this impact house prices?

Firstly, let’s review the data, and then we can look at buyer & seller expectations and how they differ greatly as a consequence of the health crisis.

Here’s a current overview of SFH and Condo sales in San Francisco yr-on-yr:

Inventory
SFH: March 2020 yr-on-yr listings fell from 242 to 108 – a 56% decrease
Condos: March 2020 yr-on-yr listings fell from 301 to 146 – a 51% decrease

Demand
SFH: Sold an average of 105.7% over asking in Apr-20 vs. 111.8% in Apr-19
Condos: Sold an average of 104.7% over asking in Apr-20 vs. 104.65% in Apr-19

Prices
SFH: Median sales price was $1,699,000 in Apr-20 vs. $1,612,500 in Apr-19
Condos: Median sales price was $1,300,000 in Apr-20 vs. $1,250,000 in Apr-19

Paradoxically, given we are in an unprecedented financial meltdown as a result of the pandemic, we’re faced with a NET INVENTORY CONSTRAINED housing market where there’s a shortage of inventory and still plenty of buyers. In short, we have PRICE STABILITY when we look at yr-on-yr median SFH/condo prices, SP % LP comparisons and DOM (Days On Market) data.

I will look into if this stability extends to all levels of the housing market, from entry-level to the upper Luxury market, in a later post. For now -generally speaking – house prices in San Francisco are not crumbling like employment levels or GDP. This is partly due to the speed of the decline during this pandemic – we have reached the same levels of decline in 7-8 weeks as it took 18 months in the last financial crisis of 2008/2009 – which could just as swiftly bounce back? Could the recovery be just as swift? A lot depends on how we come out of the current pandemic and if there will be another one down the road. Also, the economics this time round are very different, as the financial crisis was directly indexed to the housing market, how loans were being dished out, repackaged, and sold on with very little oversight which led to the financial crash and subsequent decline in house prices.

So there are some fundamental structural and financial differences between then and now which can partly explain why house prices have not fallen … yet. What’s just as interesting, is the expectation gap currently between buyers and sellers. In a recent CAR study, 80% of potential buyers are expecting prices to drop, while only 27% of sellers reduced their price to attract buyers. Sellers do not anticipate needing to discount their properties while buyers are expecting deals. The data suggests that, at the moment, the sellers are correct.

So why is this good news? It’s good in that the long-term security of owning a home still looks like a good bet here in San Francisco. As long as you buy well, your investment will be a sound one. And remember, today’s buyers are tomorrow sellers and vice versa so the long term outlook is good for all. We will find out in the coming months how the short to medium term pans out.

You may know that I’m an expat Londoner, so I tend to spend my time constantly monitoring news updates both from the US and UK – a headline recently perked my professional interest:
Number of homes sold in UK expected to plunge by 60% in next three months this is according to Zoopla (think Redfin or Zillow but in the UK). The report didn’t touch on home price decreases as it’s still too early to track this – more about that later in this post – but it did get me thinking about comparable date here in San Francisco.

Redfin recently published an article on property sales-demand decreases nationwide. Home buying demand was down 27% yr-on-yr in the 7 days leading up to April 3rd. Over a similar period, listings nationwide had dropped approx 50% (from 98K to 50k) due to the triple whammy of C-19 restrictions, interest rate increases/raising the qualification bar for loans and the closing down of open houses. 

All understandable, so what are the corresponding numbers for San Francisco (all taken from MLS)?:

• March 2020 yr-on-yr listings of SFH in San Francisco fell from 242 to 108 – a 56% decrease

• March 2020 yr-on-yr listings of Condos in San Francisco fell from 301 to 146 – a 51% decrease

• In Marin county, the decreases are even more, -61% (286 to 109) and -51% (70 to 34) respectively

• One major factor for the higher drop could be that Marin banned all Open Houses, even within vacant homes, while these continued in SF

It’s still too early to look into the possible decline in property prices due to the health crisis. Any home sales that closed in March wouldn’t have been affected by the current crisis. By the 3rd or the 4th of the month, all of the statistics programs release their current date, so around May 3rd or 4th we should have the April numbers in. Some realtors are already seeing minor price reductions in their listings but the general consensus is that it’s still too early to assess the medium to long-term effect the health crisis will have on property prices. I’ll update you on this impact in a couple of weeks time as well as how our industry is taking measures to combat the current health crisis  … in the meantime, stay healthy and stay safe.

We’re now entering week four of the Shelter In Place (SiP) and in terms of the health crisis, San Francisco is coping well in terms of the virus numbers and – speaking for myself, friends, clients and colleagues – morale is generally good. I remember when the SiP was announced and we had already been self-isolating here, talking to friends and family in the UK who were going out to pubs to celebrate St.Patricks Day – quite surreal given what was happening here. The UK has now fallen into step with other countries.

How has the real estate industry adapted to the health crisis? In general terms, the industry was quick to strike the right note. Broker tours and Open Houses were becoming a “no-no” well over a month ago, with agents taking it upon themselves to self-regulate and censor these activities long before there was a state-wide directive to not host them. Supporting activities such as appraisals and inspections took on a self-regulatory approach also, long before any directives were announced. As you can see from the image supporting this post, supporting companies took this health crisis seriously with a set of guidelines very early on and continually review these guidelines to protect their workforce, supporting companies and the general public. 

How will the health crisis impact the market in San Francisco? In my last blog post, I alluded to the impact the health crisis may have on house prices. It’s still too early to call this but I have seen – with my own transactions – clients pulling out due to financial instability. As a real estate professional my fiduciary duty is to the customer so I have to be both rational in answering their questions about the market and compassionate in understanding their fears of financial vulnerability. Many just want to press pause and take stock of what the economy looks like in 3 months time. That’s an approach that I’m not going to counter-argue. Other customers are asking, as interest rates are still so low and anticipating a drop in house prices, are there bargains to be had in the next 1-3 months? That’s another approach to take and one I shall be exploring with them … it all depends on your risk tolerance.

I’ll keep you updated. In the meantime, here’s a recent company video we produced … Enjoy!

Each month I send out a Market-Tracker report to my prospects – this includes all my prospects, ranging from online-generated leads to my own personal sphere of influence, with a whole host of other lead sources in between. Admittedly, I approached the task this week in a completely different frame of mind than the month previously. Last month – which now feels like a very long time ago – the world did know what was happening in China but it was a hemisphere away, it had n’t taken hold in the way it has now. We were mostly indifferent to what was happening elsewhere. The market here in San Francisco was ramping up into the busy spring selling season. Closed sales within our own company had jumped six-fold week-on-week and more inventory was coming into the market. What was a seller’s market in the last 4-6 weeks was quickly shifting to favor the buyer as more property was coming active … Then everything changed, almost overnight.

The real estate play-book has had to be ripped apart. Rightly so, people’s health and well-being are paramount. I have had to pause any transaction I was working on until we have a clearer sight of what the outcome will be. Everything else is less important. The real-estate industry has responded admirably to this crisis, putting people’s health before anything else. However, as a real estate professional, I can’t help but think about the impact this crisis will have on the housing market here. It’s too early to say what the short-term impact will be, let alone the medium to long-term. The economy is still in shock and will be for some time. Economists are talking about a global recession as a result of this crisis, but a sharp V-shaped one as opposed to the longer, deeper U-shaped recession we lived through after the financial crash in 2008. 

The ripple-down effect on the housing market is so difficult to predict. One barometer could/should be what happened in this last Great Recession:

As you can see here, the median sale price of a Single Family Home in San Francisco dropped from just over $900k in 2008 to just over $600k in 2009. It took over 6 years for prices to return to 2008 levels. When will house prices feel the effect of the health crisis? How deep and how long will this housing recession last?. As one economic expert opined “it’s impossible to truly predict how the market will respond to the current health crisis.” A lot depends on how long the new status quo lasts and the willingness of governments to prioritize the health of their people over the economy. This may be a simplistic reading of the current dilemma we face, but an accurate one.

We shall see. In the midst of all this uncertainty, my mantra is prepare for the worst but hope for the best.

Hello There and Happy New Decade to you!

I thought the image of sunlight glinting through the trees would be a good counterpoise to the doom and gloom surrounding us, on both a micro and macro levels , which has been the prevailing mood of the year so far. On a macro level, world events have been pretty dismal; Impeachment, the threat of war, Brexit (again), trade wars, phone hacking, the world is “burning”. On a micro level, re. The Housing Market here in the Bay Area, the predictions seem to be as dire; Stagnant house prices, increased mortgage interest rates, increasing cost of ownership, higher taxes and more people leaving the state than arriving – California lost an estimated 197,600 people to net domestic migration during the year ended July 1, according to the state Department of Finance. If you include people moving into the state from other countries, California lost 39,500 residents due to net migration.

If you take a look at market predictions for 2020 it makes for sombre reading:

• According to a recent Zillow study, the Bay Area will be the “coolest” housing market while Austin, Texas will be the hottest
• On average, US house prices are set to grow by 2.8% in 2020
• *SF’s inner suburbs will be flat, the outer suburbs flat to -2% 
• Mortgage rates have already risen 1/4 to 1/2 of a percentage point from an August low

However, like the picture referenced earlier, there are chinks of sunlight:

• The figures for the Bay Area are off the back of three years of tremendous growth/huge appreciation
• A single-family home in SF with 4 bedrooms appreciated 18.68% over the past 3 years
• A single-family home with 3 bedrooms appreciated 13.65%
• And a single-family home with 2 bedrooms came in at a whopping 20.35%
• If you had invested in a condo 3 years ago, your 3 bedroom condo appreciated 5.89%
• A 2 bedroom condo appreciated 13.01%
• And a 1 bedroom condo appreciated 10.19%

A good rule of thumb is that it takes an average of 5 years to break even on a property in San Francisco, and it takes 10 years to make a profit. It’s no surprise that the district in which a home is located can dramatically impact that timeline. District 10 (2), which includes the rapidly changing neighborhoods of Bayview, Excelsior, and Crocker Amazon, has outperformed that rule of thumb. The Median Sales Price for a property in district 10 rose 24.68% in the last 3 years. District 9 (Potrero Hill, Mission Bay, and Bernal Heights) would be the next best option for appreciation. Districts 7 (Marina and Pac Heights)  and 3 (Lakeside, Stonestown, Ingleside, Oceanview) stick to the 5-10 year rule of thumb.

So, generally speaking, the old adage still runs true for property: buy a good property in a good location, hang onto it for at least 5 years and you stand to make money. Whatever the doom-mongers tell you. It’ll be interesting to see how this year develops, for better or for worse!

* According to The Fisher Center for Real Estate and Urban Economics at UC Berkeley.