November 2022: San Francisco Real Estate Insider

As we near the holidays, inventory is still higher than expected. Obviously the entry level segment has been hampered (the most) by interest rates, but I still see Sunset & Richmond <$2M single family homes selling. As with most segments, the turn-key homes sell quickly and the houses with a few issues are taking longer to find a buyer. As we push into Thanksgiving and December, there will be some aggressive offers being put forth as many sellers want to close in ‘22.

I am seeing some sellers (with 60+ days on the market) start to panic a bit. Those sellers that purchased in the last couple years need to be flexible if they want a sale. Some will hold out and come back to the market in late Q1. Sellers that bought five or more years ago are sitting on good equity and should have the flexibility to make a good profit. 

As far as buyers, I see a many trying to time the ‘bottom.’ That strategy typically ends with the buyer missing out and getting left in a position where they have tough competition from other buyers. Others are lowering their price targets per the increase in the cost of money – but still looking (and writing offers aggressively). San Francisco has afforded owners an accelerated rate of appreciation for a long time. Nobody can predict the peak or the bottom; plan for the long term now if you want a home in San Francisco.

Speaking of interest rates, as expected the Federal Reserve raised interest rates by 0.75% last week. Expectations are that the Central bank still has a ways to go before it wraps up its tightening campaign as it wants to get inflation to a 2% target. If Mssr. Powell took some cues from around the world, he’d see that many foreign central banks are taking their foot off the brakes to try to avoid a recession. Case in points: 

• Canada: BoC hiked 50bp (vs. expected 75bp)

• Australia: RBA hiked 25 bp (vs. expected 50bp)

• Europe: ECB hiked 75bp yesterday and said they have made significant progress towards removing accommodation - may slow down hikes from here.

I’ve been advising buyers to price out five and seven year ARMs vs. the 30 year fixed. Many mortgage professionals are citing opinion that rates will start to decline in Q2 or Q3 of 2023. If that is the case, it does not mean (consumer) rates will drop overnight. The ARMs are priced significantly lower than the 30 year, and a fixed period of at least five years gives an owner time to build equity as well as have time to see rates drop (enough) for a home refinance.

Looking at the forecast for California housing in 2023, CAR (California Association of Realtors) published their “2023 California Housing Market Forecast” last month. 

CAR predicts a decline in existing single-family home sales of 7.2% next year, down from the projected 2022 sales figure of 359,220. The 2022 figure is 19.2% lower compared with the pace of 444,520 homes sold in 2021. 

The California median home price is forecast to fall 8.8% to $758,600 in 2023, following a projected 5.7% increase to $831,460 in 2022 (from $786,700 in 2021). 

Here is the forecast: