Vivre Real Estate January 1, 2024
Welcome to the Vivre Real Estate 2024 Real Estate Predictions blog for the SF Bay Area.
Our predictions post for 2023 was popular! So, before we dive into 2024 predictions, the big question is... how did we do?
Did we get our predictions right for the SF Bay Area housing market in 2023?
Our Prediction: ⬇️ We predicted mortgage rates would fall in 2023.
Were We Right?: 👎 No. Mortgage rates increased in 2023.
At the end of 2022, most economists predicted a U.S. recession in 2023. This certainly would have prompted the Fed to cut interest rates, which inevitably leads, in one way or another, to lower mortgage rates. However, the widely foretold recession never actually happened.
Instead, the 2023 economy just kept chugging along. With inflation still elevated, the Fed continued hiking rates all the way through the fall. As of the start of 2024, the benchmark Federal Funds rate (the rate at which the Fed and banks lend to each other) is between 5.25–5.50% — its highest level since 2001. Mortgage rates have fallen since peaking in Oct/Nov 2023, but they still ended the year a bit higher than where they started.
Our Prediction: ➡️⬆️ We predicted that home prices would be a mixed bag in 2023.
Were We Right?: 👍 Yes. Price appreciation was mixed in 2023 for SF Bay Area properties.
SF Median Home Sales Price, 2022 vs 2023 Year-over-Year
Citywide SF Single-Family Residence (Houses): $1,650,000; down 1.9% (click the image above for an interactive chart)
Citywide SF Condo: $1,138,000; down 4.4%
Overall, home sale prices were down a bit in 2023. But as always, the devil is in the details. San Francisco especially is not a monolith. The real estate market varies widely from neighborhood to neighborhood. For example, let’s look at the numbers for D5 (MLS District 5 — think Noe Valley, the Castro, Twin Peaks, Mission Dolores…) and D7 (Cow Hollow, Pacific Heights…).
District 5 Median Home Sales Price, 2022 vs 2023 Year-over-Year
D5 SFR: $2,515,000; up 4.8% - click to view live price charts
District 7 Median Home Sales Price, 2022 vs 2023 Year-over-Year
The Big Picture
It’s impossible to predict short-term performance in the market. There are so many variables outside of housing itself. However, the bigger picture paints a clear trend: up!
In the past decade, San Francisco single-family homes nearly doubled in price, increasing 97% since 2013. (Curious if inflation is a factor? It is, but only up 31% in the same period per the CPI.)
Ultimately, our 2023 predictions were spot-on for home prices in San Francisco, but the lower mortgage rates that most folks predicted did not materialize in the end. Fortunately, we are absolved by our trusty disclaimer:
Despite all the evidence to the contrary in this blog post, we are not in the predictions business! Real estate is deeply personal, and only you can decide when the time is right to make your move, along with the help of a trusted advisor. (Of course, we hope that’s us. 🙂 Meet our boutique team of top SF Bay Area Realtors at Vivre Real Estate.) Rather than trying to time the market, this article is food for thought, meant to spark a conversation and explore the opportunities the year could have in store. For a more intimate and personal consultation to discuss your unique situation and goals, click here to contact us.
Okay, on to our 2024 predictions!
Based on the current economic trajectory, we expect mortgage rates to continue their slow decline, probably down by around 0.5% by the end of the year, with the average 30-year conforming, fixed-rate mortgage getting closer to 6%.
Analysts at the Mortgage Bankers Association agree: “MBA's baseline forecast is for mortgage rates to end 2024 at 6.1 percent and reach 5.5 percent at the end of 2025, as Treasury rates decline and as the spread narrows.”
In an exciting turn of events, our predictions for mortgage rates in 2024 have swiftly materialized! Just days after sharing our outlook, the landscape has shifted favorably for borrowers. For a jumbo 7-year Adjustable Rate Mortgage (ARM), a popular loan type among San Francisco buyers, lenders are now advertising rates BELOW 6% with less than a point buydown. For a jumbo 30-year fixed-rate loan, qualified buyers can buy down a point to receive 6% flat. Of course, rates fluctuate daily. You lock your interest rate when you go into contract on a new home, not when you get your loan preapproval. But that’s the first step.
With effective rates at these levels for San Francisco homebuyers, we're already seeing greater interest and activity in the market in early January.
We predict home sales to increase in 2024 — ie. more homes changing hands, bought and sold. Back in October 2023, nationwide home sales hit a 13-year low. Unsurprisingly, this was exactly the time when national average 30-year mortgage rates shot up to a two-decade high of 8%.
If mortgage rates continue to fall as we predict in 2024, we should see the inverse happen: more current homeowners will see their next home as achievable, and more first-time buyers will enter the market as their purchasing power grows. In the San Francisco Bay Area, a region plagued by housing supply constraints, we hope to see the supply side easing as more prospective home sellers get off the fence to make their move. Granted, most sellers are looking for a home to BUY as well; but the increased turnover or ‘churn’ in the market makes it easier to transact and provides more options for those looking for a specific property type/location.
What about a ‘Silver Tsunami’? It will probably be more like a slow drip, but nevertheless more and more Baby Boomers will be ready to retire, relocate, downsize and ‘rightsize’ their homes, freeing up housing stock for the next generations.
Supply vs Demand: Surprisingly, home buyer demand kept steady in 2023, as long as the property and location were desirable and the sellers were realistic in their pricing. The record-low number of sales last year was actually due more to supply-side constraints rather than lack of demand. Certainly, there were fewer buyers in the 2023 market than in ‘21 or ‘22, but last year there were even fewer listings available for them to buy.
Real estate sales tend to happen around major life events: birth, death, marriage, divorce, job relocation, etc. You can only put life on pause for so long. In 2024, we’ll continue to see both buyers and sellers decide it’s time to move on with their lives regardless of the current mortgage rates. The lock-in effect — aka ‘golden handcuffs’ — of those super low mortgage rates of years past will fade.
Again, as in 2023, we predict San Francisco home prices to be a mixed bag in 2024. San Francisco’s single-family home prices will see moderate appreciation. Condo prices will vary widely and wildly from neighborhood to neighborhood. It’s likely that condo prices will dip before going back up, but this will greatly depend on location and quality of the home.
Here’s some more food for thought: SF is growing again. Per the SF Standard, “San Francisco became the poster child for a pandemic-era population drain that hit dense urban centers across the country, with the city losing some 30,000 people between 2020 and 2021.” Today, “San Francisco is again attracting new residents, with the city experiencing the highest population growth from net migration among the state’s 58 counties over the last year.”
More SF Bay Area residents, with more home-buying power via lower mortgage rates and a robust stock market? That’s a recipe for rising home prices.
Oh it’s so much fun when your industry makes headlines, isn’t it? Kinda. Not really. Le sigh.
Here’s the skinny. Class action lawyers are making out like bandits, arguing over real estate commissions. With multiple cases already underway, these lawsuits will continue and spread from state to state. California is also on the chopping block. (Our real estate economy is too large for it not to get swept up in the chaos.)
We are not here to argue the merits of the case. Let’s leave that up to the attorneys, judges, juries and media pundits. There are over 1.5 million Realtors and over 2 million real estate agents in the United States. Competence, professionalism, and integrity certainly can vary widely from agent to agent.
Here's our take.
When you hire a real estate agent to represent you in a real estate purchase as your Buyer Agent, they do not work “for free” — as some may have misrepresented in the past. The Buyer-side commission is technically paid out of the Seller’s proceeds (most of the time), but who is actually buying the home to give the Seller the proceeds? Yup, the Home Buyer. The commission has been baked into the value of the home.
What’s likely to happen? This year, regardless of headlines, expect very little to change in terms of commission and how it is paid out, at least here in the San Francisco Bay Area. Sellers have always had the right to offer a lower compensation to the Buyer Agent if they want. Commissions are negotiable and always have been.
Some argue that we will see more “dual agency” where the Listing (Seller’s) Agent represents both sides, thereby lowering the overall cost of the sale for the Seller but unlikely to benefit the Buyer. Dual agency is not a new concept, and we don’t imagine a significant change in our market. San Francisco real estate is just too complex and valuable. Most people understand this and value the services of a(n intelligent, top-notch) real estate agent.
We do anticipate the increased use of the Exclusive Buyer Representation Agreement (BRA) — see a sample BRA on our homebuyers page. This document lays out the fiduciary duty of the Buyer Agent and how the compensation works. It creates a professional relationship between the Home Buyer and Buyer Agent. As proponents of transparency, attention to detail, and quality of care, the BRA has been our personal standard for years. Expect more agents to do the same.
In the future, the commission payments may be separated between Buyer and Seller. On the one hand, it makes sense that each party should pay for their own representative. On the other hand, it is very expensive to buy a home. When the Buyer Agent’s commission comes from the seller’s proceeds, it is financed as a part of the Buyer’s purchase. However, paying their agent’s commission out-of-pocket is an additional savings hurdle for the would-be home buyer. There may be solutions in the future, where the fee can still be financed but not out of the Seller’s proceeds. We shall see how this plays out, but again we don’t expect major changes in the short term.
We predict that the formula for the most successful home sales in San Francisco will stay the same in 2024. It has been the same for decades, and we don’t see anything changing this year.
Which begs the million-dollar question: what is that formula? Price low and stage. Create buzz and get buyers to fall in love with the home. Simple, right? The trick is having the eye, the experience, and the expert team to pull it off — ideally, without you having to lift a finger as a seller. If you are considering a change in living arrangements this year, we’d love to discuss how we can help you optimize your chances for the best possible outcome. Learn more about our services for San Francisco home sellers.
Finally, a fun little look at some up-and-coming interior design trends that we think will make waves in the coming year.
As we've explored throughout this blog, myriad factors will significantly influence property values and investment opportunities this year in San Francisco. While these predictions provide a roadmap, every individual’s journey is unique.
If you have real estate goals in 2024, whether you're contemplating your first home purchase, looking to expand your investment portfolio, or considering a sale, the importance of tailored advice cannot be overstated. We invite you to reach out for a personal consultation to explore your options. Together, we’ll ensure your decisions are informed, strategic, and aligned with your long-term objectives. Contact us here.
In the meantime, why not sign up for the Vivre Real Estate newsletter? Keep in touch with all the latest news, top Realtor tips, plus our curated picks for upcoming events, stories and culture. No games, no spam, only the good stuff! Sign up here. Good luck out there in 2024!
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