July 2022: Q2 Sea Cliff - Lake Street Insider
Hello and I hope you had a great Fourth of July holiday! As we enter the second half of the year, the housing market, albeit a major economic engine, seems to be fading out of the limelight as the focus of the (media) attention skews towards the big picture – inflation, possible recession, employment and the stock market. No doubt the current economic picture is a concern to everyone. Nobody likes to pay $150 to fill their vehicle with gas, be worried about a possible job lay off (or lay off employees), or watch their retirement portfolio drop by 20%. The housing market clearly fits into this bigger picture, but clients don’t generally care (about the housing market movements) unless they plan on buying, selling or refinancing in the immediate to midterm.
The Fed has definitely used its toolbox – as they said they would do – to slow inflation. The housing market has clearly slowed as a result. Even at a local level, the market has slowed. But, it’s slowed from a hyper active market to an active market. We may still experience some more slackening, but I am still bullish on our micro-market here in the northwest corner of the city. We will get into neighborhood specifics later.
As far as housing, I read an article that surveyed a group of top 100 to 150 economists as it relates to the national housing market. Of the economists surveyed, participants expect on average 4.8% appreciation per year over the next five years. Cumulatively, they expect over 26% appreciation. On the question regarding “housing currently being in a bubble:” 65% said “no,” 35% said “yes.” From my perspective, 4.8% a year sounds like a pretty good return.
In the short term, what are my biggest concerns as it relates to the local housing market? Interest rates, layoffs, return to office and consumer confidence. Interest rates will most likely continue to climb. I doubt the Fed currently see’s any reason to take their foot off the gas. The clarity on layoffs and return to the office are still a bit unclear (as to the extent of possible job loss numbers), but layoffs are happening. As we enter recessionary waters and employees fear a possible layoff, employers will have the leverage to get employees back to the office. Of course, some employers may prefer a remote workforce, but, employee’s back in the office has proven to be a benefit to the housing market. As far as confidence, the local market is currently suffering from a lack of overall buyer confidence and optimism; mostly in the sub $3m market (where interest rates hikes kill off affordability quicker than more affluent buyers). In speaking with buyers, sellers and others that are engaged in the market, it all seems to add up to pessimistic psychology. I will say the media drum of doom and gloom can get depressing.
Enough of the big picture. Let’s take a look at the local real estate market. As referenced, San Francisco as a whole has slowed however, properties in Sea Cliff and the Lake Street Corridor are hot. For reference, in ‘Q2, properties in the neighborhood were selling quickly, and for over the asking price. Below you will see the days on the market (DOM) and the median overbid amount.
Buyers are still seeking properties that are in move in condition and without blemishes. Big ticket properties in Sea Cliff (>$15m) are selling but top end buyers are holding the cards as they expect value. Currently, there are two homes in Sea Cliff available over $30m. Both remarkable; one more than the other, but the price expectations are lofty. Speaking of Sea Cliff, the often referenced 224 Sea Cliff is in contract! I’m sure the buyer has contingencies on the legality of the steps to the beach as well as lot lines. But, if it’s in contract, the biggest obstacle to a sale has been overcome; the numerous lenders have come to an agreement on what, if any, debt will be written off so the multi-year saga can end.
Looking at the number of sales as well as the median numbers, the Lake Street corridor is superhot and Sea Cliff is in a typical ‘Q2 lack of inventory cycle. The Lake Street sales are up 140% year-over-year and the sales prices jumped 22%; very impressive!
The top sales show a couple homes that were somewhat at the opposite end of the spectrum; one move-in ready and the other that was in need of updating, but, the large lot of the north of Lake Street home proved to be a huge value (hence the $1852 per foot).
That is it for now.