What Will the Fall Bring?

As a student of real estate my entire life, this COVID-19-induced market has taught me much and introduced different concepts and principles into the market which we might never see again in our lifetime. Normally in September I write about what we can expect in our fall real estate market because it marks the start of our second selling season of the year in San Francisco. 

Our two best seasons are in the spring, from February to June, and then in the fall after Labor Day, from September to Thanksgiving. Our summers are normally slow because many people take vacations which means that buyers, sellers, and agents are out of town, thus delaying the buying or selling decision until they get back. There are also many weekend events, such as the SF Marathon and Outside Lands concert during the summer that take the focus off of real estate. 

However, this year, many of the events were canceled or delayed to the end of the year. People are just starting to travel, and the new Delta variant might curtail people’s activities in the near future, which might bode well for the real estate market.

Our July median sales price for single-family homes in San Francisco hit $1.9 million for the first time, up 15.2% year over year! This is the highest price we have seen in the City. The sales volume is way up and the months of inventory is about three months, meaning that it will take three months to sell all the listings currently on the market, a historically low number.

Many factors contributed to the abundance of activity in this market. Interest rates dropped to historically low levels, boosting buyers’ purchasing power. The stock market is up 15-25% this year across the major indexes, creating more wealth for those who are invested in the equities market. People are working remotely and finding that they need more space and making moves to acquire them. Others are moving from more densely populated neighborhoods or living arrangements and choosing to go to a single-family home neighborhood. The exodus from San Francisco has stopped and people are moving back into the City again.

What will the fall bring? 

I think it will be more of the same as people realize that the pandemic is not going away any time soon and has not caused any major issues in the real estate market. Initially, most people thought that real estate prices would drop, and it was best to take a wait and see position. But as time went by, it was evident that the demand was still there for San Francisco real estate prices did not go down as feared. My feeling is that this will continue for the rest of this year.

San Francisco is a seven-mile by seven-mile city and we are pretty much all built out. They are not making any more land. So, our inventory is almost always tight and demand is pretty good. What we are seeing currently is an anomaly that we have never seen before and might never see again in our lifetime.

What does this mean for the consumer? The best advice is to work with a real estate professional who is on top of the market to provide you with the insights necessary to fulfill your goals in this changing marketplace.

For sellers, these are the highest sale prices we have ever seen in San Francisco. With plenty of buyers out there, if priced correctly, you should receive multiple offers and get the highest possible price. For buyers, I recommend proceeding with caution. Currently, prices are the highest they have been, but the opportunity to obtain a historically great interest rate is still there. In the near future, even if prices come down, the interest rates will go up which might neutralize any financial differences. I urge buyers to consider all factors before purchasing.

For people who are looking to trade up, this market is presenting an opportunity to reposition your real estate portfolio for the long term as you can lock in on a low interest rate now and pay it back with tomorrow’s inflated dollars.

Speaking about inflation, have you seen prices lately? Grocery prices are up, restaurant food prices are up, gasoline prices are more than $5 per gallon at some places; for sure, inflation is back! And simple economic theory states that during time of inflation, you want to own real assets such as real estate as it is a good hedge against inflation.

This will be an interesting fall selling season and should give us a taste of how the market will be going into 2022.

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.