December '23 Holiday Newsletter

December 15, 2023

Real Estate

December '23 Holiday Newsletter
Aethos Real Estate - Market Update
November 2023
December 2023 Market Update
Happy Holidays from the Team at Aethos!
May these upcoming holidays bring you joy and may the New Year be filled with new adventures and happiness!
As we end the year, it is often a time to reflect as well as plan for the future. It has certainly been an interesting year.
The market has definitely shifted this year. Over the last few decades, up and down sales cycles came in approximate four year intervals. In San Francisco and the Bay Area, we have always gone up more than we’ve dropped in sales cycles. Historically we have often led every real estate recovery and been amongst the last to fall in down markets. But for the last decade, we have had a fairly constant up market. This year we are seeing some mild price decline. Given how elevated the prices have been in San Francisco the last ten years, this is more of a leveling off. And the market, despite the increased interest rate, is an opportunity for buyers to purchase at a reduced price and refinance when interest rates drop.
December is a great month in which to buy. Sellers are more motivated by the year end and deals get made that might not be at any other time of the year. The interest rates, while still at a 23 year high, are not horrible (comparing our current 7.5% to say the 13-18% of the late 80's). And if you buy now, you will get a lower price, which means lower taxes, and when the rates do drop in a year or two you will see an instant bump in values as everyone jumps back into the market. You will then be able to refinance and significantly lower your costs. As many of you have heard me say, just don't buy something you can't afford, so if you have to stay there an extra year or two to take advantage of the market, then it’s not a burden.
If you are thinking of getting into the market, buying or selling, please reach out to us via phone/text or email. We'll be happy to discuss and weigh options that make sense for you. 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 in further detail below.
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

For Sale
Asking: $1,999,000
3 Bedrooms | 2 Baths | 2+ Parking |1980 Sq. Ft.
This elegant and renovated center patio home sits at the junction of 3 awesome San Francisco Neighborhoods, Forest Hill, West Portal and the Inner Parkside. Built in 1936 the home retains all the details and charm of this enchanting era, but features a brand new kitchen and large primary bedroom and bath that open directly out into the garden. Center patio homes are a fairly unique San Francisco style that features a small deck in the middle of the house that is open to the sky. This allows light and air into the middle of the home and gives you a quiet and protected space to just step right out into from inside. The home also features a grand living room with high ceilings, an impressive fireplace and flows right into the formal dining room. If you like to entertain this is a wonderful floor plan. Off the dining room is a small breakfast room or office and then the renovated kitchen with new quartz counters, new cabinets and new stainless appliances. This level is completed by a lovely art deco bathroom and two large bedrooms that overlook the western facing garden.
Downstairs, in a addition to the large 2 plus car garage, is the new primary suite. Added with permit, this very large room features both a walk in closet and an entire wall of closets. Sliding doors allow you to step out into the large, level and private backyard. The new primary bath has a beautiful marble double vanity and large soaking tub with shower.
The home is located on a quiet cul-de-sac but is just a quick walk to West Portal shops and cafes and the shopping on Taraval. Don't miss this wonderful home. Please call/email us with any questions or to set up an appointment to see it.
The Big Story
Fed policy is working, but mostly just on housing
Quick Take:
  • The national median home price declined 3.8% in the third quarter, landing only 4.7% below the all-time high reached in June 2022 and reflecting typical seasonal trends. Prices didn’t contract significantly in Q3 2023 despite mortgage rates rising 0.6%.
  • In October, the average 30-year mortgage rate reached its highest level since October 2020 at 7.79%. Higher and higher rates continue to price potential buyers out of the market and prevent sellers who are locked into hyper-low rates from entering the market.
  • The Q3 Real Gross Domestic Product (inflation-adjusted GDP) rose 4.9% quarter over quarter, indicating a broadly strong economy. Although unemployment rose 0.3% to 3.9%, the jobs market remains robust. Inflation, which rose in Q3, is nearly double the Fed’s target rate of 2%, so rate reductions won’t happen in the near future.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
It’s all about interest rates
Home prices remain near all-time highs, largely due to the sustained low inventory levels, and despite the average 30-year mortgage rate hitting a 23-year high in October at 7.79%. It’s hard to overstate the full significance of higher mortgage rates on the housing market; but, in short, they are the primary driver of market slowdown. For example, when accounting for the cost of financing a mortgage, a buyer’s monthly cost for a median home today is actually 11% higher than in June 2022 when prices were at their peak. Looking further back to when the Fed began to raise rates at the beginning of 2022, the median monthly cost of a home has increased 76% from then until now.
So why have prices stayed elevated even as the cost of financing has skyrocketed over the past 22 months? For sellers, prices have to stay high or else they wouldn’t enter the market. Approximately 75% of U.S. homeowners have mortgage rates of less than 4%, according to JPMorgan, which has kept sellers from entering the market. If prices broadly contracted, even fewer sellers would come to market because they likely couldn’t afford a new house because their profit margin would be too low. Although people move for all sorts of reasons, generally speaking, there are very few sellers who are selling because they have no choice. Even if sellers were breaking even on their home sale, transitioning from a sub 4% mortgage to a nearly 8% rate is completely unappealing. Sellers who are coming to market now need to make a profit so that they can finance less of their next home in order to counteract the higher mortgage rate. Of course, this is for existing homes, but new construction isn’t much different. Material and financing costs are higher for homebuilders, too, and when a house costs more to build, the prices increase as well.
Inflation isn’t helping the market, either. People feel less wealthy than they did three years ago, and they’re right to feel that way. In just the three years from September 2020 to September 2023, the dollar has lost about 15% of its buying power, the same amount it lost over the preceding 10 years (September 2010 to September 2020). Even though inflation is declining, all that means is that prices are rising more slowly than last year — which is good, but it doesn't make anything more affordable. The combination of declining purchasing power and higher mortgage rates only reduces market participants, slowing the market.
High mortgage rates aren’t going away anytime soon because inflation is still about twice as high as the Fed would like. So far, most of the economic slowing the Fed intended by raising rates seems to be isolated to the housing market. The National Association of Realtors (NAR) reported that the number of homes sold dropped 2.0% month over month and 15.4% year over year to the lowest number of sales in the four years that NAR reports. Real GDP rose significantly in Q3 2023, indicating strong U.S. economic growth rather than economic slowdown. It’s unlikely that the Fed will hike rates at the December meeting, and very unlikely that they will reduce rates in the near future. We can expect mortgage rates between 7% and 8% in 2024, which will continue to slow the market.
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.

Asking: $1,549,000
5 Bedrooms | 3.5 Baths | 3+ Parking | 3490 Sq. Ft.
Do you know someone looking for an amazing deal? This home is it. This fabulous home in the Novato hills is ready for you to move right in. This open floor plan home is perfect for entertaining. In addition to the 5 bedrooms (including a renovated primary suite with 2 walk-in closets and a stunning new spa bath), this home is built for entertaining. The main living area features a huge great room with grand fireplace and vaulted ceiling and views, an open dining room, a freshly updated kitchen and a spacious family room with a second fireplace. All this is flanked front and back by large decks. And the home sits on almost half an acre and includes the magical wooded hillside behind the house. Located on quiet Cherry Hill, you are just minutes from Downtown Novato, The Freeway, the Smart Train and so much more, all the while feeling like you are deep in the country.
An incredible home at an incredible price. Don't miss this opportunity. For more info, pictures, videos an 3D tour just click on the link above. Or reach out to us for a private tour.
Big Story Data
Asking: $2,999,000
Stunningly Redone
3 Bedroom, 2 Bath, 4 Car Parking home in Bernal Heights
612-616 26th Avenue
Sold For: $2,219,999
2 Vacant and Renovated Edwardian Flats in San Francisco's
Richmond District
Sold For: $3,988,000
2 Gorgeous Redone Victorian Flats in
Lower Pacific Heights

The Local Lowdown

Quick Take:
  • The median single-family home price rose 14% over the past three months. Condo prices have trended horizontally throughout 2023. Minor price changes are typical in the fourth quarter, and we expect prices to remain fairly stable for the rest of the year.
  • Active listings fell from September to October, nearing a record low for condos. Year over year, inventory is down 21%, highlighting one of the challenges of buying a home in a desirable market.
  • Months of Supply Inventory fell significantly in October. While MSI still indicates a buyers’ market for condos, single-family home MSI now implies that the market favors sellers.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Single-family home prices rose significantly over the past three months
In San Francisco, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. Since January 2023, single-family home prices have increased 15.9%, with the majority of that gain coming in the past three months. Condo prices haven’t experienced huge variances this year, trending horizontally. We don’t expect another wave of new listings in the fourth quarter, so the market will likely slow, which is typical this time of year, and the declining number of new listings will create price support.
Typically, demand begins to decline in the fall and bottoms out in January, so the consistently low supply should be less of an issue. With mortgage rates at a 23-year high, buyers have more incentive to compete over the most desirable homes. Because of the cost of financing, homebuyers aren’t settling for less than the best home they can find.
Sales rose significantly in October
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at a significantly depressed level. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. This year, sales and inventory peaked in May, while new listings peaked in September. New listings have been exceptionally low, so the little inventory growth from February to May was driven by fewer sales. The number of new listings coming to market is a significant predictor of sales. In September, new listings rose 32%, and in October, sales increased by 37%. Year over year, sales and new listings are down 10% and 28%, respectively.
Demand spiked in October after a surge of new listings came to market, giving sellers slightly more negotiating power, and buyers paid more than asking price on average. The average seller received 96% of list in January, which grew to 102% by June. The amount sellers received declined below list price into September 2023, but rose to 101% of list in October.
Months of Supply Inventory indicates the market shifted back to a sellers’ 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 in 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). The San Francisco market tends to favor sellers, at least for single-family homes, which is reflected in its low MSI. However, we’ve seen over the past 12 months that this isn’t always the case. MSI indicated that single-family homes and condos began the year in a buyers’ market. MSI declined in the first half of the year for single-family homes, indicating that the climate shifted from a buyers’ market to a sellers’ market. However, in the third quarter, MSI rose substantially, indicating a buyers’ market once again. In October, sales rose considerably, dropping MSI below three months — back to a sellers’ market. Condo MSI moved from a balanced market at the end of the first quarter of 2023 to a buyers’ market, and it has remained a buyers’ market since April.
Local Lowdown Data
Contact Us
John L. Woodruff III
580 4th Street San Francisco California 94107
(415) 999-9827
All information deemed reliable but not guaranteed. If your property is listed with a real estate broker, this is not a solicitation of brokerage services. John L. Woodruff III, License 00952491
Aethos Real Estate.

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