What Will Fall Bring Us?

As a student of real estate my entire life, 2023 holds special interest for me as this prolonged real estate cycle has changed. Normally in September I write about what we can expect in our fall real estate market because it marks the start of our second selling season of the year in San Francisco.

Our two best seasons are spring, from February to June, and then fall, after Labor Day, from September to Thanksgiving. Our summers are normally slow because many people take vacations, which means that buyers, sellers and agents are out of town, delaying the buying or selling decision until they get back. There are also many weekend events, such as the SF Marathon and Outside Lands Music Festival, during the summer that takes the focus off of real estate.

Our July median sales price for single-family homes in San Francisco is at $1.55 million, down 16.2% year over year! This number started turning negative last year. The sales volume is down about 30%. Months of inventory is at three months, meaning it will take about three months to sell all the listings currently on the market, still a fairly low number.

In many ways, this is a confusing market with many experts disagreeing on where this market will go. On one side, you have the pessimist who is saying that we just started a major correction. Our market has gone straight up the last 12 years and this type of appreciation is not sustainable. With inflation back, interest rates still inching up and the stock market uncertain, we are looking at a further price decline.

On the other side, you have experts arguing that our economy is still doing well, our unemployment is down, people are recovering from the pandemic, inflationary pressure appears to be moderating, interest rates have gone up, but the Feds have signaled the end is near, and consumer confidence is up.

Also, since the mortgage crisis, banks have tightened up their underwriting. And with the appreciation of the last 12 years, people have more equity in their homes and can sustain a larger price decline. So even if prices do drop, homeowners do not need to sell and will ride the cycle out. This suggests that even though there is pressure on home prices, it will not be too severe.

Both sides have legitimate reasons for their beliefs. Nobody has said the appreciation of a few years ago is around the corner yet.

This brings the question of what will happen in the fall? I think it will be more of the same as the real estate market does not stop. There will always be people who buy and people who sell. Because of the lower prices and many sellers have low mortgage rates either because they recently purchased the property or refinanced it, they are reluctant to sell and thus this will keep the listing inventory low. Prices are dependent on the supply and demand balance, so this helps to stabilize prices and prevent them from falling too much.

A larger area of concern is the investment market where the interest rates are higher and insurance is difficult to get; plus, the property most likely is under rent control, limiting revenue increases. Many are lingering on the market searching for the correct price point in today’s market, and I believe that there will be buying opportunities in this segment of the market.

What does this mean for the consumer? The best advice is to work with a real estate professional who is on top of the market to provide you with the insights necessary to fulfill your goals in this changing marketplace.

For sellers, though the prices have dropped, these are still very high prices we are looking at in San Francisco. With buyers still out there, if priced and marketed correctly, you should still be able to sell at a good price. For buyers, I recommend proceeding with caution. Currently prices are still high, but you are buying at lower prices than previous years and when the interest rates do come down, you can always refinance the loan and come out further ahead. I urge buyers to consider all factors before purchasing.

For people who are looking to trade up, this market is presenting an interesting opportunity to reposition your real estate portfolio for the long term as competition for properties is less than before.

This will be an interesting fall selling season and should give us a taste of how the market will be going into 2024!

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email at johnlee@isellsf.com.