Real Estate

Real Estate – John M. Lee

2019 Real Estate Market Review

As 2019 comes to an end, we have had an amazing 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 economy stayed strong in the Bay Area and affordable housing issues were the hot topics in the news again this year. Following is a short recap of what happened in our local San Francisco 2019 market.

The market remained steady throughout the year with mortgage interest rates actually decreasing from 4.5 percent to about 3.5 percent by the end of the year. This has been hovering in all-time historically low territory for quite a while now and contributes greatly to the strength and breadth of this market.

We ended 2017 with an increase of 3.2 percent in the number of sales from 2016 and a median price increase of approximately 4.4 percent. We ended 2018 with a 2 percent increase in the number of sales from 2017 and price increase of 8 percent. In 2019, our projected numbers of sales are about 5 percent below last year and about a 2.8 percent increase in the median price. So the trend is showing a decrease in the number of sales and a decrease in the rate of appreciation. 

 What does this mean? Have we reached a plateau yet? Is this the inflection point? Will prices continue to rise? 

In a normal market for goods, when sales decrease or level out, prices tend to drop 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 the lack of inventory and buyer’s appetite to own a piece of San Francisco. Also, the market has factored in the decrease in tax deductions on mortgage interest and property tax payments from the Tax Cuts and Jobs Act tax reform in 2018, which effectively increased housing expenses for buyers.

The readers of my column 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 from 2012-2015. The next two years came with slower or normal rate of appreciation. In 2018 however, buyers came off the sidelines thinking that they better buy before the mortgage rates go up much higher. And with the same level of listings (supply), they drove the prices up. 

This year has been a year of hesitation with both buyers and sellers. We saw the most price reductions we have seen in years and some listings actually were pulled from the market. However, if a property is priced correctly, it was still getting multiple offers and selling at high prices, meaning buyer demand is still there for some homes.

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 the time. Both rents and prices of housing have gone up so much that affordability has become the largest concern amongst the 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.

The 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 San Francisco, resulting in less demand. 

So, where is the market heading in 2020? I believe that we have peaked in our prices and next year we might see either a slight increase or prices will remain relatively flat. If you are a seller, your window of opportunity to take advantage of these high prices is limited.  If you are a buyer, I would recommend proceeding with caution as price appreciation, if any, will not be high 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 more are looking at 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 2020!

John M. Lee is a broker at Compass specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 465-0505 or email john.lee@compass.com.

Categories: Real Estate

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