Aethos November Market Update

Happy November! You may have heard rumors that the housing market is changing. There are several articles below about this. The main thing to remember is that there are always opportunities in a changing market. The interest rates have gone up, it's true. They have doubled in the last year, which is astounding. I won’t rant about why I think the Fed is wrong in doing this, I am told there is not much I can say to change their mind. Still, historically, they are relatively average now. I bought my first place at 8.75% on a 5 year fixed ARM. When I started in the business rates were more like 12 or 13% and had recently been as much at 18%! While this does make it harder to get into a property, it also means that prices are coming down. I would rather buy a house cheaper on a higher interest rate. The rate can be refinanced when rates come down, but the lower price cannot as easily be adjusted. And, in a market like this, with the rates and all that is going on politically, many buyers are going to hit the brakes. That’s often one of the best times to buy. There’s an old saying in the industry the buyer’s never buy in a buyer’s market. I have also, I might add, always done well with buyers in the last two months of the year and in January as well. Sellers tend to be more motivated if they are on the market at that time.

For sellers, well it’s time for your agent to get out their Real Estate Bat Belt and start dusting off some of their old tools. Given the length of the last up market (an unprecedented 8+ years) many agents in the market have never had to really work to get their listings sold and are not going to have the skills to do so. After 35 years I have worked through quite a few cycles in the market. With one client right now, we have dropped the price and, because they luckily own the property free and clear, they are able to offer to carry the first for the buyer at 4.5% for 2-3 years until the interest rates drop again and they can refinance. This can have some risk but can also have reward. The seller can lower their price, but still make some of that back with the payments. We had a client a few years ago who did this on a $6.5 million dollar listing. The buyer put $2m down and then after 2 years defaulted on the loan (nice guy, but his start-up did not start up.) The seller got to keep the down payment (!) and we were able to resell the property for him at just a little more than the previous sale. Plus, he made all those mortgage payments over 2 years! Also, in most cases sellers are more than likely going to be buying again and then, again, there could well be some good opportunities. They may not sell for as much as people a year ago, but if they bought more than a few years ago, likely they will still be ahead of the game. Another idea is to offer to give a credit to the buyers to buy down the loan. On a $1.4M sale, $20k toward reducing the loan can equate to a $50k price reduction in terms of their mortgage payments (lenders can vary on this).

Now for some fun news! The www.DickensFair.com is back!! Some of you know that my family and I all perform at the Great Dickens Christmas Fair each year. It took a bit of a hiatus the last few years, but it is back and going again and we will all be out there (as will Jessamy Collier-Kent from my team as the stalwart Mrs. Cratchit). For those unfamiliar with what I am talking about, the Dickens Fair takes place each year at the Cow Palace in Daly City. They take over more than 14 acres of indoor halls and create Dickensian London (mid 1800’s) at twilight on Christmas Eve. Throughout the streets there are shops, cafes, bars, stages and games and activities for kids. Additionally, there are actors roaming throughout the fair, on and off stage, portraying characters from many of the beloved Dickens classic stories and acting them out in the street. There are also many historical and other fictional characters about creating a spectacularly immersive experience for one and all. Monique and I will be performing in a show call “All’s Well That Ends Badly” on the Victoria and Albert Stage. Saiya is portraying Charlie, one of the urchins in Oliver Twist, Drake and Griffin will be working at food and game booths respectively. Please reach out to me if you would like tickets. I will have a limited number of free tickets and discounted ones when those are gone. But please let me know at least 24-48 hours in advance. The Fair will run every weekend from November 19th and 20th to December 17th and 18th and includes the Friday after Thanksgiving.

And, of course, Happy Thanksgiving!

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.

In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.

As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.

- John L. Woodruff III, LIC #00952491

Quick Take:

Note: You can find the charts & graphs for the Big Story at the end of the following section.

We don’t love to make outright predictions, but enough data has been released to suggest that home prices peaked nationally in June 2022, and we likely won’t see another peak this year. Of course, there will be deviations in local markets, but the larger trend is clear: Home prices cannot sustain the growth rate we’ve seen over the past two years.

The Fed provided huge incentives to buy homes as part of its easy monetary policy during the pandemic by purchasing Mortgage-Backed Securities (MBS) and dropping interest rates. MBS play an integral role in home financing by allowing banks to bundle and sell mortgage loans, thereby turning the bank into an intermediary between the financier and financial markets (investors). Banks get some fees, and investors, rather than the bank, get the interest from the bundle of mortgages, so in many ways, the bank facilitates the loan but investors are the ones really lending the buyer the money. The Fed was a huge investor in 2020 and 2021, doubling its MBS holdings to $2.7 trillion. However, the Fed isn’t buying any more MBS and, in fact, would like to sell — but can’t do so without taking huge losses. Additionally, mortgage rates have jumped dramatically in 2022, more than doubling, which shines a light on just how unique 2021 was for home buying.

Last September, the average 30-year mortgage rate was 3.01%, meaning that a $500,000 loan would cost $2,100 per month. (That same loan now costs $3,200 per month at 6.70%.) Because the interest rate has such an outsized impact on the affordability of a home, more buyers entered the market, dropping inventory like never before. It was a great time to finance a home, and those buyers who had a down payment rightfully bought even as prices were increasing, since home prices typically continue to increase. This is actually a newer phenomenon, but one that isn’t going away. Since the mid-1990s, home prices began to move more like risk assets (stocks, bonds, commodities, etc.), which marked a huge change from the preceding 100 years. From 1890 to 1990, inflation-adjusted home prices rose only 12%, which is hard to imagine with the massive price growth, up 70% nationally, that we’ve seen over the past 10 years.

Demand for homes has declined over the past three months, which, besides the rate increase, is the seasonal norm. Because home sellers are often buying as they sell, new listings have dropped as well, causing inventory to decline. Inventory is still historically low and will be the one major buoy for home prices. The market has shifted to softening demand and softening supply. Mortgage applications are down 29% year-over-year according to the Mortgage Bankers Association. This, too, isn’t terribly surprising. Generally, homes aren’t bought and sold over and over in short time frames. The high number of sales in 2021 indicates fewer sales in 2022, especially because the buying incentives in 2021 are no longer in place. We can finally say that the market is cooling, but after the hottest two years since the mid-2000s, cooling indicates a healthier market.

The U.S. housing market has become more nuanced over the past several months and depends more than ever on the region. Some parts of the country are trending closer to balance, while some are moving deeper into a seller’s market. Take a look below at the Local Lowdown for in-depth coverage of your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.

Victorian Charm and Modern Design

This gorgeous, iconic, one-of-a-kind Victorian retains the beauty of its perfectly preserved turn-of-the-century facade while featuring dramatic, modern and stylistically unified interior spaces. This stunning four-level home consists of two legal units that the present owner enjoys as a single family home, but the structure provides many options depending on your desire for space, rental income, privacy or other considerations.

The upper three levels constitute the larger of the two units featuring five bedrooms and four full and one half baths. House like, top floor is dedicated to a striking primary suite with high vaulted ceilings and City views. An open, dazzling private spa showcases a sublime bathing room set inside a sunlit roof turret–an exceptional architectural feature. This bathroom, like all in the house, features Grohe fixtures, Nameek accessories and ceramic tile by Porcelanosa. Set next to this breathtaking space is a dressing area with a vanity sink, storage, and separate water closet.  

A highlight of the second level is a large gourmet kitchen with quartz countertops that dramatically contrast with ebony-finished cabinets. The kitchen features high-end stainless steel appliances, including wine coolers, from Bosch/Thermador. Beautiful French doors welcome you to an enchanting private deck for al fresco dining, entertaining, or simply enjoying the excellent weather the neighborhood offers. Just off the kitchen is a pantry, a lovely powder room, and spacious open plan living and dining areas that include a gas fireplace and light filled, bay windows looking west over quiet, tree-lined Fair Oaks.

The entry level of this unit, which sits a handful of steps above street level, through the iconic periwinkle front door, features 4 Bedrooms and 3 full baths including two bedrooms with en suite baths. One of these bedrooms is large enough to be considered a second primary bedroom. An additional pair of bedrooms share a Jack-and-Jill bathroom. A convenient laundry closet and side-by-side washer and dryer are on this level as well.  A private stairway leads to the pretty, manicured shared garden, complete with hot tub.

A large, twelve hundred square foot, full-floor lower-level unit was added five years ago as part of an extensive remodel. This flat features high ceilings, two bedrooms, two full baths, powder room, laundry, functional gas fireplace, a sleek modern kitchen (outfitted as fabulously as the upstairs kitchen), and open living and dining spaces. Easy access to the yard is off the living room and one bedroom.

Enjoy the beautiful crossgrain wood flooring, high Victorian ceilings and Sonos surround sound throughout this remarkable building. Independent parking is leased right around the corner and includes an EV Charging unit, a second separate space may also be available. Besides making an extraordinary single-family residence, this flexible property would be an excellent purchase as a family compound or for partners who wish to Fast Track a condominium conversion.

Located on sought-after, tree-lined Fair Oaks Street, just a few blocks to Mission Dolores, this property is set perfectly between the Valencia/Guerrero corridor’s gourmet district and Noe Valley’s ever-popular 24th Street shops and cafes .  The neighborhood is supremely walkable, rating a 96 on walkscore.com.  Access to 280 is quick and easy via San Jose Ave, which eases Peninsula commutes. We’re confident you’ll love this amazing home as we do.

Each Unit is also being offered individually as a Tenants-In-Common:

387 Fair Oaks - $3,199,000. 5 Bedrooms, 4.5 Baths

389 Fair Oaks - $1,299,000. 2 Bedrooms, 2.5 Baths

NOTE: For the sale of the whole building or for the TICS Seller may be willing to carry a first note for up to 2 years at 4.5%. 

Perfect for entertaining, this recently renovated 2 bedroom 2 bath condo is filled with light. Owners, after purchase a few years ago, renovated and opened the kitchen creating a large spacious and airy living space. The kitchen features quartz counters, shaker style cabinets, electric appliances, contactless/touchless kitchen faucet, new tiled backsplash and new lighting both above and under counter and over the peninsula.  There are beautiful, dark, Mirage hardwood floors throughout for a sophisticated urban style.  The living room and dining areas are both generous and very flexible and there is a step out balcony on which the owners kept a small barbeque.  The dining area can fit a very large table or something more modest that expands.  The whole area is surrounded by south and west facing windows, so the home is always filled with light.  And the sellers replaced 8 of the large windows providing extra energy conservation and better sound management.

Both well sized bedrooms are off the street overlooking the lobby atrium and very quiet.  The primary bedroom features a wall of closets, plenty of room for a king size bed and side tables and a renovated, en-suite bath.  The primary bath features a large, marble tiled shower with dolomite and mother of pearl, arabesque patterned inlay.  There is a new vanity with quartz counter and lighting.  The second bedroom also has a good-sized closet plus a nook perfect for a home desk, reading chair or possibly crib.  The second bath was also renovated with new tile and shower surround and quartz counters, vanity and deep soaking tub. Both baths have new Hansgrohe fixtures and Toto dual flush toilets. Overhead lights throughout the unit are controlled with Leviton smart switches.  Off the kitchen is a laundry nook with stacked washer/dryer.

The building features full-time, 24-hour security who can accept packages and control who comes in and out.  Parking and storage are included and assigned.  There is additionally a private outdoor heated pool, spa, sauna and gym.  Located in the Van Ness Corridor the property is located at the apex of Lower Pacific Heights, Nob Hill, Civic Center and Hayes Valley and is a walker’s paradise with a 99 walk score and 93 transit score. It was one of the things the sellers loved about this location, all the different neighborhoods , cafes and parks they could walk to.  They liked it so much they bought their new place nearby.

NOTE: Fantastic New Price - Sellers Motivated

HOA Dues: $1387/Month - Includes, garbage, water, HOA Insurance, Management, 24 Hour Security, reserves, high speed internet, building maintenance, gym, spa, pool and sauna. There is also a common laundry room available.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

When we consider the increases in mortgage rates and normal seasonal trends this time of year, when prices tend to stagnate or decline slightly, the price contractions that single-family homes experienced in the second half of this year aren’t alarming. Yes, we are moving into a new chapter in the housing market that doesn’t involve astronomical price increases and 20 offers the first day the home gets listed, but that’s actually a good thing. Single-family home prices in San Francisco grew considerably in 2021 and the first half of 2022, and a contraction is a normal response to that sort of growth. We are now entering a stage of slower growth — but still growth. Real estate has shown itself to be one of the best investments in recent history and is, on average, the largest store of wealth for an individual or family. Price appreciation will likely move to a more normal growth rate of around 5-6% in the coming years.

Single-family home and condo sales declined month-over-month, along with fewer new listings coming to market. This caused inventory to decline in San Francisco, a trend that will likely continue through the rest of the year. San Francisco, along with the rest of the country, has not returned to pre-pandemic inventory levels. Homes have generally sold faster over the past two years, making new listings more and more important to the market. Inventory generally grows when new listings increase or homes sit on the market. With rates rising at such a rapid pace, new listings are slowing considerably, having dropped 25% from the second quarter of 2022 to the third. Last year, they only dropped 5%. We can tie new listings not only to supply, but to demand as well, because sellers are often buying, too. Softening demand has brought the market closer to balance despite low inventory.

Months of Supply Inventory trends toward a balanced market for single-family homes

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI has drifted higher (toward balance) over the past six months but remained below three months of supply for single-family homes, indicating we are still in a sellers’ market. Condo MSI, however, has remained above three for six months, implying the market favors buyers.

One Last Thing

Click on the link below to see what's happening this week in the San Francisco market. The highest priced listings, the lowest, the quickest to sell and the slowest. Fun for a quick browse. Save the link, it will update weekly. Have fun.