2018 R.E. year in review

by John M. Lee

As 2018 comes to an end, we have had an amazing year in the real estate market. The question we always ask at the end of the year is: Where is the real estate market headed?

The economy stayed strong in the Bay Area and affordable housing issues again were the hot topics in the news this year.

Following is a short recap of what happened in our local San Francisco market in 2018.

The market remained steady throughout the year with mortgage interest rates rising from the 4 to 5 percent range by the end of the year. Even though this is still low by historic standards, it is the highest it has been the last seven years and it has impacted the market.

We ended 2016 with a 4 percent decrease in the number of sales from 2015, and a median price increase of approximately 3 percent. We ended 2017 with a 3 percent increase in the number of sales from 2016 and a price increase of 4 percent. In 2018, our projected numbers of sales are about the same as last year, with about a 11 percent increase in the median price. A good trend with about the same number of sales and a good appreciation rate.

But, have we reached a price plateau yet? Is this the inflection point?

In a normal market for goods, when sales decrease or level out prices tend to decrease because of lower demand. But the real estate market is more complicated than simple economic theory because there are many other factors that can affect it. What we are witnessing here is a lack of inventory and buyers’ appetites to own a piece of San Francisco.

The readers of my columns know that our market bottomed out in 2009 and we have been in a strong recovery mode ever since, resulting in large double-digit appreciation rates from 2012-2015. The following two years came with a slower, or more normal rate of appreciation.

In 2018, however, buyers came off the sidelines thinking that they had better buy before mortgage rates rose significantly. With the same level of listings (supply) available, buyers drove prices up. The market did slow down in the fourth quarter of this year, so we will see where it goes next year.

In San Francisco, we tend to lead the real estate cycle as compared with the rest of the nation, and thus our market is being watched and analyzed all of the time. Both rents and the price of housing have gone up so much that affordability has become the largest concern amongst many residents of San Francisco. The good news is that rents have come down somewhat recently and prices appear to be leveling out, so perhaps affordability issues will start to moderate.

One factor that will affect our market moving forward is rising interest rates, which will decrease buying power. The higher prices have driven some people away from the San Francisco market, resulting in less demand.

In the fourth quarter, buyers were much more hesitant to make offers on properties and many decided to sit on the sidelines to see what happens before buying.

For 2019, I believe our prices have peaked and next year we might see either a slight increase in prices or a relatively flat market. If you are a seller, your window of opportunity to take advantage of the current high prices is limited. If you are a buyer, I would recommend proceeding with caution as price appreciation, if any, will not be substantial for the next few years.

If you are a real estate investor, now is a good time to evaluate and perhaps reposition your portfolio for the future. Many are looking for income rather than appreciation.

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 very happy holiday season and a prosperous 2019!

John M. Lee is an agent at Compass, specializing in the Richmond and Sunset districts. For real estate questions, call (415) 447-6231 or email johnlee@isellsf.com.