Mid-Year Real Estate Update
As I write this column, the first half of 2022 is just about over. Each year has its own challenges, and this year we have been dealing with higher inflation, rising interest rates, declining stock market and the seemingly never-ending battle with COVID-19.
So, where is the real estate market at? Let us look at some data and decide for ourselves where the market is at currently and try to figure out where it will be going.
I analyzed the single-family home markets in the Richmond and Sunset districts – these two markets generally track very closely together – and compared them against the data in San Francisco as a whole.
For the first six months in 2022, 107 single-family homes sold in the Richmond, as compared to 77 in 2021, a 39% increase! The median price went from $2,370,000 in 2021 to $2,550,000 in 2022, an increase of 7.6%. The median days on the market increased from 10 to 12 days. Thus, we had a substantial higher number of sales, higher prices, and a slightly longer amount of marketing time in the Richmond.
In the Sunset, 225 homes sold during the first six months in 2022, versus 213 in 2021, an increase of 5.6%. The median price rose from $1.65 million in 2021 to $1.828 million in 2022, an increase of 10.8%. The median days on the market went from 10 to 11 days. In the Sunset then, we have more homes selling, higher appreciation and also a slightly longer marketing period.
In San Francisco as a whole, the number of single-family home sales increase by 8.8%, the median price went up by 9.2%, and the marketing time went from 11 to 12 days. So compared to the City, the single-family homes in the Richmond and Sunset districts are following the same trend with the City.
We can conclude that the first half of 2022 in the real estate market was very positive despite the fact that the major stock indexes declined in the neighborhood of 20-30% and the interest rates went up from about 3% at the beginning of the year to about 4.5% currently. Inflation is hovering in the 8% range the last three months, a 41-year high and the Feds have just increased the Fed Funds rate another 0.75% in June after a 0.5% increase in May.
Most people are asking why when the other financial signs are all pointing in a negative direction and yet real estate is bucking the trend?
The answer is that the real estate market moves slowly and typically lags the general overall market and economy by a few months. During the first half of the year, listing supply either increased or remained about the same. Because the buyer demand was still there, we had a good market. Buyers are purchasing based on need, and some wanting to lock in on historically low interest rates. Some sellers perceived this year to be the top of the market and decided to take profit and sell.
By the end of June, I saw more price reductions and homes sitting on the market longer without offers. I believe the effect will be more evident during the summer months when our market slows down anyway.
The next question most people ask is, if prices do go down, how much will they go down by? That is a tough one to answer. Based on prior cycles, prices went down about 10-20% from the peak.
Let’s do a little math with a hypothetical buyer. At the beginning of the year, he is buying a $2 million home with a down payment of 30% or $600,000 and a loan amount of $1.4 million. With a 30-year mortgage loan at 3%, the monthly payment is roughly $5,900. Most people are stretching to purchase a home, so let’s assume that this is all the buyer can afford.
Fast forward to today, if the same exact buyer was purchasing, and if we assume that the $600,000 was in the stock market and 25% of that was lost, the down payment becomes $450,000. Since the interest rate is no longer at 3%; at a 4.5% interest rate and a payment of roughly $5,900, the buyer can only qualify for a $1,200,000 mortgage. That means this buyer can only purchase a $1.65 million home now versus $2 million before, a 17.5% drop.
Let’s assume that the buyer was astute and pulled all the money out of the stock market before the tailspin and still has $600,000 for the down payment. With a loan amount of $1.2 million, he can purchase a home at $1.8 million a 10% decrease from before. So, the scenario for a 10-20% drop in price is very real.
What can prevent this scenario from happening?
Real estate tends to be a long-term game for most people. And since loan underwriting has tightened since the 2008 mortgage crisis, and homes have appreciated the last few years, most owners have a sizable equity in their homes. They can make the decision that if the prices are low, they are just going to continue to hold and not sell, thus limiting the supply and keeping the prices up.
How this plays out the rest of the year will be interesting, and I will keep you updated on the market. As always, if you are thinking about buying and selling, I would strongly recommend that you consult with a Realtor, accountant and perhaps an attorney prior to making any real estate decisions.
John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email at firstname.lastname@example.org.
|Richmond Homes Sold in June*|
|778 39th Ave.||2||1||1,120||$1,480,000|
|3326 Cabrillo St.||3||2||1,488||1,825,000|
|714 22nd Ave.||2||1||1,345||1,900,000|
|3825 Anza St.||4||4||2,376||2,550,000|
|440 36th Ave.||3||3||2,302||2,575,000|
|427 27th Ave.||4||4||2,175||2,700,000|
|188 Collins St.||5||5||3,335||2,747,000|
|867 27th Ave.||5||5.5||2,795||3,030,000|
|200 20th Ave.||4||3.5||2,800||3,471,000|
|2412 Lake St.||4||3.5||2,535||3,500,000|
|Sunset Homes Sold in June*|
|1979 33rd Ave.||2||1.5||825||$1,250,000|
|2718 42nd Ave.||3||1||1,228||1,400,000|
|2687 37th Ave.||2||2||1,250||1,450,000|
|3125 Quintara St.||3||1||1,214||1,550,000|
|2418 21st Ave.||4||1.5||2,417||1,600,000|
|1631 44th Ave.||2||1.5||1,445||1,650,000|
|1886 29th Ave.||2||2||1,359||1,708,000|
|1124 Moraga St.||2||2||1,290||1,825,000|
|1535 35th Ave.||3||2||1,851||1,850,000|
|1900 15th Ave.||2||1||1,456||1,900,000|
|2370 42nd Ave.||3||2||1,565||1,950,000|
|1360 22nd Ave.||3||2||1,535||2,050,000|
|2578 41st Ave.||5||4||2,352||2,120,000|
|1487 Sixth Ave.||3||2||1,725||2,400,000|
Categories: Real Estate