Real Estate Market Review

Looking back, as 2024 comes to an end, we have had another interesting year in the real estate market. The question being asked at the end of the year is always: “Where is the real estate market headed?”

The last up cycle in real estate finally ended in 2022, which started the downward trend and continued last year with higher inflation rates and rising interest rates causing even slower sales. This year, with the presidential and mayoral elections, the focus turned to issues such as crime, homelessness, affordable housing, inflation and how to make the City better. Following is a short recap of what happened this year in the San Francisco market.

The market started the year slow with the holiday carryover from 2023 and remained that way throughout the year. Owners trying to sell were disappointed by the market reaction to their properties. If the home was all fixed up, in a desirable location and at an attractive price, sellers were still able to get good prices as there are still buyers around. However, if there were some defects, the property might sit on the market for some time and sell at a discounted price.

Our preliminary numbers are showing that our sales in San Francisco will be up about 10.5% and prices up about 4.9% from 2023. I will do a more thorough analysis of our local Richmond and Sunset districts next month.

What does this mean? Is the downtrend over? Has the real estate market found a bottom and will trend up from here?

The readers of my columns know that our market operates in cycles which bottomed out in 2009, and we were in a strong recovery mode until 2022, including large double-digit appreciation from 2012-2015. The next few years came with slower or normal rate of appreciation.

In 2020, COVID-19 hit and we had a stoppage in the market for a couple of months before sales came roaring back strong with people reconsidering their long-term housing situation and taking advantage of historically low interest rates. Our market here on the west side did very well as the trend of moving from high-density to low-density locations was evident throughout and created much demand in the Richmond and Sunset districts. Prices increased here more than other parts of the City.

A down cycle started in 2022 and continued in 2023. Inflation was high and the Feds kept raising interest rates to try and keep it under control. The raises totaled 5.25% over the last two years. With each increase, mortgage rates rose accordingly. This year, the Feds were supposed to decrease interest rates about six times, but they ended up dropping rates only twice for a total of .75%.

While movement of long-term mortgage rates track close to 10-year treasury yields, the fed funds rate is one component that can affect it. Mortgage rates are more complicated as they also depend on other factors such as the supply and demand of funds and market trends. In 2024, 30-year mortgage rates started the year at about 7.5%, then dipped to 6% and ended the year at about 6.75%.

So where is the market heading in 2025? I believe that we have seen the worst of this market. Normally the cycle is about seven years up and three to four years down or flat before we recover. Currently we are at the bottom of the cycle. I expect that prices will continue to be flat to slightly up in 2025.

There is some excitement around Daniel Lurie becoming our next mayor and optimism about what he will bring to the City and how he will fix the problems we have. While people are worried about the Trump victory, the stock market and economy did do well when he was president.

We are fortunate in San Francisco that, despite the problems we have, we are still a desirable place to live and there are always buyers purchasing. So, if you are a seller, you can still sell your property at the right price. If you are a buyer, I would recommend proceeding with caution as large price appreciation will not be back for a couple more years, but there are opportunities out there. If you are a real estate investor, now might be a good time to pick up properties at prices that you could not have negotiated in the last few years.

I enjoyed speaking and exchanging emails with you this past year. Many of you had some great questions and insights about our market and the Richmond and Sunset districts. I wish you a safe holiday season and a prosperous 2025!

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 johnlee@isellsf.com.