2023 RE Market Review
As 2023 draws to a close, the real estate market has had an interesting year. Here are some questions we always get asked at the end of the year: “Where is the real estate market headed?”
This last upward cycle in real estate finally came to an end last year, and a downward trend began that continued into this year as rising inflation and rising interest rates further depressed sales. With COVID-19 largely under control, the focus has shifted to issues such as crime, homelessness, affordable housing, inflation and how to make the city better. Below is a quick summary of what happened in his 2023 market in his hometown of San Francisco.
The market started the year sluggishly due to holiday carryover from 2022, and remained so throughout the year. A prospective seller was disappointed in the market’s response to his property. Even if the home was in all repairs, in a desirable location, and at an attractive price, there were still buyers, so the seller could get a good price. However, if there are any defects, the property may sit on the market for some time and be sold at a discount. Then, as interest rates rose steadily throughout the year, sales slumped and prices fell further.
Mortgage interest rates had fluctuated in the 6-8% range throughout the year, but had fallen to around 7.5% by the end of the year. The good news is that the latest numbers showed inflation slowing and suggested the Fed could end its interest rate hikes. As a result, interest rates fell significantly just before the end of the year. Economists expect interest rates to be in the 6-7% range next year. However, remember that a period of inflation is always followed by a recession. I believe we are already in a recession, but that won’t be confirmed until the data is released and economists have a chance to consider it.
Our preliminary numbers show sales in San Francisco will be down about 28% from 2022, and prices will be down about 8%. Next month, we’ll be doing a more thorough analysis of our local Richmond and Sunset neighborhoods.
What does this mean? Will this downward trend continue? Will prices continue to fall?
Readers of my column will know that our market bottomed in 2009 and has been in strong recovery mode ever since, delivering significant double-digit gains from 2012 to 2015. The next few years saw a slower rate of increase than usual.
In 2020, COVID-19 hit the market, shutting it down for several months until sales returned to strength as people reconsidered their long-term housing plans and took advantage of low interest rates. Our market here on the west side has been very strong because there’s been a clear overall trend from high-density locations to low-density locations, creating a lot of demand in the Richmond and Sunset areas. Prices have increased here more than in other parts of the city.
The downcycle began in 2022 and continued in 2023. Inflation remained high, and the Fed continued to raise interest rates in an attempt to control inflation. The rate was raised in four installments by a total of 1%. With each increase, mortgage rates rose accordingly.
Changes in long-term mortgage rates follow closely the 10-year Treasury yield, and the federal funds rate is one factor that can influence it. Mortgage rates are more complicated, but they have roughly followed the rise in federal funds in recent years.
So where will the market go in 2024? I think this real estate cycle downturn started about a year ago. It typically rises for about seven years before recovering, then falls for three to four years before leveling off. Now from 2018 he is back to his 2019 price. I expect prices to continue to fall in 2024 and hopefully bottom out sometime within the year. I do not want such a collapse in the real estate market because I believe that our economy is not as bad as it was during the financial crisis from 2008 to 2010.
Next year is also a presidential election year, and President Joe Biden will do everything in his power to lower interest rates and boost the economy by November. Locally, this is a big election year, with the mayor facing at least two major opponents and all of the odd-numbered district supervisors running for election. All of our politicians will do everything we can to present a positive outlook for our country and San Francisco.
The good news is that San Francisco, despite its problems, is still a great place to live and there are still buyers. So, if you are a seller, you can still sell your property at a good price even though prices are currently down. If you are a buyer, it is best to proceed with caution as the significant price increases will not be reversed within a few years, but the opportunity exists. If you’re a real estate investor, now may be a good time to acquire a property you haven’t been able to afford in recent years.
It has been a pleasure talking and exchanging emails with you over the past year. Many of you had great questions and insights about our market and the Richmond District and Sunset District. We wish you a safe holiday season and a prosperous 2024.
John M. Lee is a Compass broker specializing in the Richmond and Sunset areas. If you have any real estate questions, please call 415-465-0505 or email johnlee@isellsf.com.
Richmond homes sold in November* | ||||
address | bed | bus | square meter fort | price |
7144 Geary Boulevard | 3 | 2 | 1,662 | $1,230,000 |
719 29th Street | 3 | 1 | 1,204 | 1,250,000 |
155 Dr. Sealrock | 3 | 2 | 1,900 | 1,500,000 |
167 20th Avenue | 3 | 2 | 2,359 | 1,700,000 |
230 22nd Street | 2 | 1 | 1,540 | 1,700,000 |
650 23rd Street | Four | 3.5 | 2,603 | 1,900,000 |
137 11th Avenue | Four | 2 | 2,070 | 2,020,000 |
345 Ewing Tell | Four | 3 | 2,606 | 2,650,000 |
318-12th Avenue | 3 | 2.5 | 2,825 | 2,700,000 |
255 17th Avenue | Four | 2.5 | 2,874 | 3,250,000 |
129 24th Street | Four | 3.5 | 3,810 | 4,797,500 |
710 El Camino del Mar | 6 | Five | 6,854 | 9,850,000 |
Sunset House sold in November* | ||||
address | bed | bus | square meter fort | price |
1730 22nd Street | 3 | 1 | 1,390 | $1,030,000 |
2382 30th Avenue | 2 | 1 | 1,049 | 1,175,000 |
1919 21st Street | 2 | 1 | 1,125 | 1,205,000 |
2466 38th Street | 3 | 1 | 1,190 | 1,300,000 |
1731 26th Street | 2 | 1.5 | 1,265 | 1,482,000 |
2562 35th Avenue | 3 | 2 | 1,790 | 1,510,000 |
1639 17th Avenue | 3 | 2 | 1,954 | 1,560,000 |
347 Quintara Street | Five | 3 | 1,950 | 1,610,000 |
2467 15th Avenue | Four | 3 | 2,184 | 1,650,000 |
101 Quintara Street | Five | 3.5 | 2,610 | 1,950,000 |
2046 48th Street | 3 | 2.5 | 2,030 | 2,040,000 |
1224 16th Avenue | Four | 2.5 | 2,919 | 2,100,000 |
1680 18th Avenue | 3 | 3.5 | 2,635 | 2,880,000 |