It’s been nearly two years since the benchmark 30-year fixed mortgage interest rate began climbing from the low 3% range, and there is a growing consensus that relief is on the way — finally. In fact, rates have declined each of the last three weeks according to Freddie Mac’s Primary Mortgage Market Survey, dipping to 7.44% as of last measure. Lawrence Yun, Chief Economist at the National Association of REALTORS®, predicts further decline below 7% by next spring.

Meanwhile, in San Francisco, would-be sellers continue to sit on the sidelines, reluctant to give up whatever attractive rate they may have locked in. Last month saw the smallest amount of residential New Listings (565) reported for October since 2011; year-over-year decreases have shown up repeatedly in 2023. Along the same vein, a decades-low figure for Sold Listings (391) in October is consistent with a year on track to record the fewest closed transactions since 1995.

It’s not unusual for the number of homes offered for sale relative to purchase agreements signed to peak this time of year. A wider look at Months Supply of Inventory reveals that Single-Family home absorption remains largely at pre-pandemic boomtime levels. On average, sold houses are spending 23 Days on Market and settling Over List Price ±69% of the time. Underlying the resilience of this market segment is essentially no construction of net-new units, and a relatively affluent buyer pool.

Citywide values for Single-Family homes are in the ballpark of those last seen in 2019-2020. At $1,650,000 last month, the Median Sales Price is ±21% above the January 2023 low; it has increased each of the last three months.

As for Condo/TIC/Coop properties, Months Supply of Inventory is elevated at levels in keeping with a buyer’s market. Sold units are averaging 47 Days on Market and only ±34% are going Over List Price. Seller concessions are very much still on the negotiating table. That said, the pipeline of brand new homes planned to reach the market next year is exceptionally slim and a drop in interest rates is expected to have the most profound positive effect on demand in this segment.

Citywide values for Condo/TIC/Coop units are trailing in their recovery but have approached $1.2 million several times this year. Last month’s Median Sales Price is ±22% above the December 2022 low, coming in at $1,155,000.

The case is strong for prices rising from here on out as inventory is squeezed and competition heats up; decreasing borrowing costs will hasten and amplify that reality. Moreover, should rates drift lower as predicted, even down to an unlikely low 6% over the next 6 months, the potential savings to borrowers will all but certainly be canceled out by price gains — and that’s not factoring in the expense of renting, foregone equity-building, and homeowner tax benefits. Simply put: the waiting game is a losing game for buyers (as attempting to time the market often is).

Despair not!

Here are three strategies home buyers may explore now to lock in a lower-than-prevailing rate. Particularly for Condo/TIC/Coop properties at low- and mid-tier price points and where sellers are motivated by a need to sell, these can clinch win-win deals:

Buy Down The Rate

› An array of programs exist, but the most popular is a 2/1 buy-down whereby the rate is 2 percentage points lower in the first year and 1 percentage point lower in the second year. This discount is paid for in “points” (1 point = 1% of the loan amount) which may be negotiated as a credit from the seller at closing; cost varies by lender. By the end of the second year, a borrower would refinance into a rate presumably lower than today’s.

 

Seller Financing

› Terms are agreed upon by seller and buyer, typically taking the shape of a 3- or 5-year fixed rate loan culminating with a balloon payment. Recent local examples have included interest rates at 5% and 6%, and even an arrangement with no down payment. Refinancing into a traditional loan before the balloon payment becomes due is key (unless the buyer happens into a financial windfall).

 

Assume The Seller’s Loan

› If the seller has a VA, FHA, or USDA loan (none of which are especially common here but they do exist), then a buyer may be able to take it over at the stated rate. The buyer will need to qualify for the loan as they ordinarily would, and the home being purchased must be a primary residence. The catch is the difference between purchase price and loan amount likely must be filled by cash, and that amount could be large.