The Market Creeps Back
April was our first full month of "shelter in place." San Francisco's early lockdown appears to have been successful as we have suffered far less than other areas of the country and the world. But there is an active debate about how long to keep large parts of the economy on hold and exactly how to reopen safely. No one knows exactly what will happen in the coming months and that uncertainty is perhaps the most important driving force. Below is a rundown of how our real estate market did last month and what we can expect in the coming months.
What happened in April?
The San Francisco residential market certainly took a hit in April. Spring normally accounts for a large percentage of annual sales and a normal April would see the numbers accelerating. But this year the number of properties on the market and sales plummeted in April - there were 27% fewer active listing as compared to last April as sellers pulled their properties off the market to await more certainty about showings and the economy. The number of new listings, pending sales and completed sales all were 60% lower than a year ago.
Prices have not declined however. The median single family home (for closed sales, some of which went into contract in March) was $1.7 million, 5.4% higher than last year. Condos/TICs/Coops did even better with a median price of $1,300,000, up over 6% from last year. The overbid received stood the same as last year, a median of 3.5% and the median days on market was the lowest it has ever been, 14 days.
The only discernible trend from district-level statistics is that the northside surged. Districts 1, 7 and 8, running from the Richmond through Pac Hts, the Marina and the hills to the waterfront all posted median price increases above 19% year over year. The rest of the city was more moderate. Districts 9 and 10 running from SOMA to Bayview and inland to include the Mission, Bernal, Potrero, Excelsior and Portola were up about 5%. The Lake Merced area and West of Twin Peaks, with it's suburban feel advanced in the 11-13% range. District 2 (Sunset) and 5 (Noe, Castro, Haight) were the only areas posting lower median prices. I use three month rolling averages for district statistics, so these numbers are not "April-only" but they are consistent with the overall picture.
In summary, there is no indication that prices are falling. This is not a surprise since the property market is subject to "downward stickiness" - sellers are reluctant to accept a lower price on such a large asset and resist any change in the market. That is, if prices are going to fall it will take many months until sellers accept a new reality. We also have to think about demand and supply; it will take a big drop in demand to give San Francisco a true buyers market and the dropping inventory tends to prop up prices also. Much will depend on the trajectory of the economy and, relatedly, buyer and seller psychology in the next several months.
How have sales procedures changed?
After a large-scale removal of properties from the market at the beginning of the lockdown, I would say that things have moved more toward "normal." Most agents are still putting properties on the market when they can, and helping active buyers, and properties are selling even if not at the normal pace. But practices have changed to make the process as safe as possible.
Gone are the days of casual shopping via open house (and indeed all open houses are prohibited). The city's SIP rules specify that showings must occur virtually unless that is not feasible. Generally, this means that buyers are asked to view videos, 3D tours and photographs first (all of which we were using already) and make a real decision as to whether the property is one they would like to pursue. This makes the "look" of the property presented online more important as buyers are relying much more on pictures. Most agents are also willing to provide a "live" tour via FaceTime call. Many agents are requiring that buyers prove their financial means to purchase before scheduling an in-person showing. And of course everyone uses precautions - masks, sanitized surfaces and no more than 2 people from the same household plus an agent. Up until April 29, occupied properties could not be shown at all but the city has now relaxed that rule to allow showings as long as the occupant is not present at the same time.
Some creativity in the contract process might be necessary, such as agreeing ahead of time what to do if some aspect of the transaction is delayed by unknown future events. Inspections and appraisals are allowed, as are construction projects and landscaping (as of May 4) - all with precautions. And just yesterday, the city began allowing staging. The bottom line - more advance work is done virtually and timelines may be lengthened from the lightning speed we were accustomed to before, but otherwise the process is largely the same.
There is one other procedural change, not related to the pandemic. San Francisco realtors began complying with the National Association of Realtors' Clear Cooperation policy on May 1. Previously, some agents sold "pocket listings" through exclusive networks - email lists or websites with subscription or qualification requirements - and excluded those listings from the MLS. The new policy is intended to help home buyers and sellers by requiring that all publicly-marketed properties be listed on the MLS so that all agents can see them, enhancing competition and access. Agents may continue to broker true private sales, where there is no public marketing, such as within their brokerage or to individual clients but such sales were always a very small part of the market. Moreover, even if a property is publicly marketed, agents need not list it as "active"; it can be entered in the MLS as "coming soon" which is not syndicated to public websites (such as Zillow). So far in May "coming soon" listings have surged amazingly and are about 25% of the listings citywide. Many of these coming soon listings are actually available for viewing and purchase now - so keeping in touch with me, as your agent, is more important than ever if you are thinking of buying or selling.
What can we expect in May and beyond?
Should you buy or sell now? Will prices go up or down?
No one really knows and there are many conflicting forces at work.
There will be a certain amount of pent up demand that will surface after even a partial reopening. Normally, there are a large number of sales in the Spring and then a slowing through the Summer to a nadir in August. But this year there may be a transfer of Spring sales to the Summer and Fall, and market timing must take account of the likely lack of traditional Summer travel.
There should be a decrease in the buyer pool due to layoffs and job or general economic insecurity. That decrease may be offset, however, by fewer houses on the market as sellers rethink whether they should trade up now. Moreover, a decrease in demand may not change prices if there are still enough buyers for the inventory (2 offers are just as good as 10). Keep in mind also that economic downturns generally hurt those at the lowest end most, and those are not generally the people looking to buy in our overpriced city.
There is a great deal of capital waiting on the sidelines for just this type of correction event, so investors may jump in as soon as any decrease in prices surfaces, propping up prices at least somewhat. We are already seeing increases in low-ball offers, but so far no effect on the actual sales prices.
The property market is not very elastic. There will likely be a disconnect between buyers and sellers as the former expect some discount given the gloomy economic news, while the latter hold out for pre-pandemic prices, at least for a time. Early sales will be from those sellers desperate to sell and may not reflect the overall market; an overcorrection is possible early on followed by an increase in prices with even a glimmer of economic certainty.
Some types of housing may suffer more, especially in the short term. For example, downtown towers may not be as desirable as people flee to homes with more air, space and separation. Transit access may lessen in importance as people shy away from crowded trains. But will these changes last as other non-pandemic concerns resurface?
Uncertainty breeds fear but also opportunity. Some will conclude we are in for a long economic downturn and hoard capital to survive it. Others will see this moment as their chance to enter the market or make a move up that might be out of reach next year, especially given super-low interest rates. It is hard to say how these conflicting forces will balance.
San Francisco will likely benefit from its relative safety compared to other areas of the country where the pandemic has hit harder and our dominant industries - tech and bio-tech - largely benefit from the current situation.
Although no one has a crystal ball, I think it is unlikely that prices will drop significantly if at all because the fundamentals driving our market (supply/demand imbalance driven by political realities; relative economic health going into the crisis; desirable weather; natural, architectural and cultural assets) will not change. That said, different segments of the market will be affected differently. Geography (down to the micro-neighborhood), price level and type of property, and of course the condition and "feel" (layout, finishes) all go toward a true understanding of the correct pricing on the house you have or want, and how to position it in the market. That is what an experienced agent brings - detailed, current analysis of both price and risk with boots on the ground as well as an eye for the proper preparation to maximize buyer demand and price. You need the data and day to day knowledge of the market from someone who is in it on both sides all the time.
I am always happy to discuss your situation and the market - or anything else - so never hesitate to drop me a note or give me a call (415.531.2800).
Silver Linings
In this time of pandemic and economic downturn, it can be easy to see everything as a negative. But it's always important to look for the positive. As has been widely reported, with traffic and industrial production way down our skies are much cleaner. We have time to really notice our neighborhoods, look more carefully at each other and think a bit about what is most important to us and where we are going.
Healthcare workers are overwhelmed but they are also saving many many people and we can be thankful for these trained and dedicated heroes who have chosen a life of service. My mother, grandmother, aunt, sister-in-law and two nieces (as well as many friends) are all nurses. Let's celebrate them this National Nurse's Week (ending on May 12, Florence Nightingale's birthday), and all of our essential workers all the time, during this time.
We are "stuck" at home, but we get to spend some real quality time with our closest loved ones. We cannot meet in person, but we can see and hear each other via phone, Zoom and from behind our masks. That gives us an opportunity to talk to people in different ways and maybe even get to know some people we did not before. I am never one to ignore reality, but with that sometimes negative take comes something else - an ability to see what is good, even great, in this hazardous time. Don't ignore the cloud, but don't miss the lining.
Take a Hike, Buddy!
Being cooped up in the house for a few months can lead to depression, weight gain and a sluggish feeling. Everyone knows exercise is the answer, but a lot of us city-dwellers are used to getting our heart rate up at a gym or through participatory sports. With those off the table, there is lots of running and home exercising going on. But if those don't appeal to you, take a walk!
We live in a great city with lots of parks and people certainly have been filling the obvious places, sometimes to the detriment of good social-distancing. Here are some ideas for less traveled walks.
Instead of crowding into Mission Dolores Park or the Panhandle, go further afield. McLaren Park is almost as big as Golden Gate Park but much less busy, as it is surrounded by fairly low density neighborhoods. Same with Merced Lake, or explore the Presidio or Lands End. In the busier parks, keep your eye open for the wooded trails that lead "nowhere." You will often find a nice deserted or bizarre ancient structure and be sure to enjoy the quiet. Start here.
Walk in your own neighborhood. In our "normal" lives, we tend to take the same route to get from home to work, gym, or transit. And how many times have you found yourself in a Lyft or Uber staring at your phone and not noticing what's around you? Now is your chance to go the other direction, away from your standard route and actually look at what is there.
Take a city walk to a neighborhood you have never been in. There are at least 89 neighborhoods in our city, some of them (like SOMA) quite large and really a series of different neighborhoods. And they are all packed into a 7 square mile area, so you can reach a lot of them in a 2 mile, 30 minute walk from your front door. The variety of streetscapes and architecture is astounding and is more stimulating than just walking around your own block again.
Walking is good for your body and your mindset (here's some guidelines), and it's easy to breath with a mask when you are moving slower. So add it to your exercise routine and get to know our great city!