Turbulent Times Require Calm Analysis
With COVID-19 fears roiling the stock market I have been asked many times how the residential property market in San Francisco is fairing in these unusual times. So far, there is no evidence of a downturn but real estate is always slow to react to economic news so it is really too soon to tell. But a serious downturn seems unlikely. Why? These fundamentals: (1) San Francisco retains its position as one of the best markets in the world due to the beauty and character of the city, world-class business and cultural institutions, and persistent high demand and low supply driven largely by political factors; (2) employment is still very very high and prominent industries here - technology including biotech - are poised to continue their growth; (3) interest rates are at 50-year lows giving buyers much more bargaining room. There is no question that a dip in the stock market will rob some buyers of the down-payment they thought they had and that others will view recent events as a signal to pull back on expensive purchases. But others will still need a new home due to changed family circumstances or as a retreat from what seems like an unstable and scary world, or will realize that the US and San Francisco have always recovered and thrived after every challenge. If you had been thinking of buying or selling before you should resist the urge to do nothing but instead calmly consider your situation, what is actually likely to happen and what you should do, given the facts that are before you. I'm always happy to help with that analysis.
Let's look at the facts we have - what has happened so far in the Spring market, keeping in mind that the statistics from January and February are not particularly helpful as they reflect a low number of sales in the slowest months of the year (less than half the number in the Spring and Fall markets). The median sale price for all properties was $1,402,778 in February, up 10.5% from last February but below the high in October of $1,452,500. Single family homes were up 7.3% year over year to $1,610,000 and condos/TICS/coops were up 14% to $1,288,500. Anecdotally, up to the date of this newsletter, open houses have been quite busy and properties at all levels are moving. Whether the current situation will stop that momentum remains to be seen.
Inventory (the number of active listings) was down by over 10% in January and February, which usually creates a supply restriction leading to price appreciation. Of course, the disruption in March may mitigate that effect this year but we will not know until at least next month. And there did seem to be more properties coming on the market in early March this year. Price per square foot was up 3% year over year to nearly $1100/square foot, just below the highest number ever ($1105) reached in April 2019. Overbids, which have trended down since Spring 2018, were 2% higher in February but at a mean of 105% of list price well below the 110% level seen two years ago.
Looking at these facts, it is clear that we were in a very good position to see appreciation entering into March. As noted, there may be some delay in that appreciation now as buyers perceive an opportunity for lower bids and/or sellers hold off on making sales decisions until their stock portfolios stabilize. That said, there is opportunity in every market and your personal circumstances are always the first consideration. I suggest you always talk through the situation, strategize and examine the risks and rewards of selling or buying now (or not).
Drop me a note or give me a call (415.531.2800).
Neighborhood Statistics
It is always good to follow your particular neighborhood's sales statistics as San Francisco's market is quite fragmented. As with the overall statistics, take these indicators with a grain of salt as they reflect low sales volume at the beginning of the year. Further, within these districts, smaller areas sometimes depart from the norm. That said there are some trends.
The westside continued its upward trajectory from 2019, but only one area beat the citywide median appreciation of 10.5%. District 1 (The Richmond, Sea Cliff, Presidio Hts and Laurel Heights) was up almost 4% year over year to a median price of $1,610,000. District 2 (Sunset, Parkside, GG Hts) was up 9.5% to $1,421,000. District 3 in the southwest corner of the city around Lake Merced, as well as Ingleside and Oceanview, surged dramatically to $1,125,000, a 16% increase.
The center of the city was half down, one average and two gangbusters. The big winner was perennial favorite District 7 (PacHts, Marina) which surged 17.6% year over year to a median price of $2.1 million edging close to it's record high median of $2.2 million which is notable since these are largely January sales reported in February. Does this reflect a flight to a "safe" neighborhood? Possibly, as the other long-time expensive neighborhoods in District 8 (Nob/Russian/Telegraph Hills, North Beach & Civic Center) Only time will tell. District 4 west of Twin Peaks was down 3.4% to $1,465,000. District 5 (Noe Valley, Castro, Haight) also fell about 3% to a median of $1,635,000. District 6 (Lower PacHts, Western Addition, NOPA, Hayes Valley) appreciated at the same rate as the city as a whole, up 10.6% to $1,327,000.
Eastside neighborhoods showed no exciting trends, both up respectably. District 9 (SOMA, Mission, Potrero, Bernal), rose 3% to $1,187,500 with condos up 5%. District 10 (Excelsior, Portola, Bayview) was up 5.5% to $1,002.000. Will we see any neighborhood dip below $1 million this year? There may be a few bargains during this volatile period so if you are interested in getting into the market, it may be a good time. But sellers should certainly take heart of the fundamentals mentioned above, remain calm and be careful not to let overall concerns rule personal ones.
Always keep in mind that this newsletter is a general overview. For a real analysis of your home's value or a plan to acquire a new place call me - 415.531.2800. (All district figures are rolling 3-month averages to adjust for small numbers of sales in some districts in some months.)
Interest Rates Plummet
It is hard to overstate the impact of interest rates on the residential real estate market. Although we often hear of hordes of cash buyers, in fact there are a LOT of financed sales in San Francisco. And some of the cash buyers are actually relying on money borrowed from a retirement account or parents and plan to finance immediately after purchase. So rates matter.
Last week some mortgage rates slipped below 3%, lower than at any time since 1971. They have ticked up a bit now, probably due to the avalanche of refinancing applications, but stock market jitters should keep them low for awhile. So how much does it make a difference? On a $1.5 million purchase with 20% down, the payment is $5728.98 at a 4% rate. Chop that rate to 3% and suddenly the monthly outlay is $5059.25. That's a lot of extra money every month and would help a lot of extra people qualify for a more expensive purchase. If rates stay down it pushes buyer demand - to lock in a purchase before they rise and also to be able to offer a bit extra to seal the deal. It tis important to note that mortgage rates do not always directly follow the general markets (including the stock market) because they are based on long term (generally 30 or 15-year contracts). But a silver lining of the current stock market decline is that it has driven down rates - at a time when qualifying for a loan is relatively easy.
I always discuss financing with all of my clients up front so that they can be positioned to make a great offer (if they are buyers) or know where the ultimate purchaser will come from and what is driving them. Watch the rates! More information here.
Go to the Park!
With our community coming together by staying apart - social distancing to slow the coronavirus transmission rate - one activity still open to us all is to enjoy our many parks. San Francisco is blessed with huge parks and small, close to almost everyone. Of course, you should still avoid large gatherings in those parks, but it is easy to be by yourself, walking trails and meadows. And the exercise is good for general health, both physical and mental. So if you are told to stay home from work and your normal social outlets shut off during this critical time, consider some outdoor action. Details here and here.