Make a visit to any open house this spring and you’ll likely encounter multiple house hunters eager to make a deal. And while many new listings are accompanied by the invitation to submit an offer on some specific date 1-2 weeks out, buyers are not waiting. In fact, we’ve witnessed more than one pre-emptive bidding war recently. Winning offers are overwhelmingly non-contingent and well above asking price.

The median sales price of homes in San Francisco has increased during the first half of the year consistently over the past two decades, averaging 11.49 percent according to data reported to the MLS.

Fear of missing out is rising among price-sensitive purchasers — for good reason. Simply stated, demand is way, way up from last year and inventory is lagging. The result is a median home price that has risen ±15% year-to-date according to MLS data. Not only is that magnitude of growth higher than average for the entire first half of the year (11.49% over the past 20 years), but only twice in the last two decades did the median price decline in Q2. Up, up and away!

Freddie Mac’s survey shows the benchmark 30-year fixed interest rate above 6% since September 2022. It peaked at 7.79% in October 2023.

Meanwhile, the outlook for interest rates improving by any significant measure continues to deteriorate. Borrowers have largely accepted a 6-7% benchmark range as the new normal, however would-be sellers remain reluctant to surrender whatever historically low rate they may have. For now — and probably until home prices exceed the previous peak — that means inventory is going to remain even tighter than it would be otherwise.

For better affordability, lack of other options, and a last chance to buy the dip, those market segments that have been less competitive are attracting buyers. The San Francisco Chronicle article below, to which we are honored to have contributed, provides excellent insight into the surge of activity happening downtown. To be sure, this is only the beginning of a robust growth cycle for local real estate.

Christian Leonard | March 24, 2024

Few segments of the Bay Area’s housing market were hit as hard during the pandemic as San Francisco condos, but real estate analysts say a surge is coming.

Jessica Christian/The Chronicle 2021

San Francisco condominium values are still far below pre-pandemic levels, many large buildings remain half-vacant, and the prospective buyers who might fill them have yet to return. But real estate agents say that’s starting to change.

“The market has already hit bottom,” said Mike Basham, founder of San Francisco real estate firm VULCCA. “It probably hit bottom a year ago.”

Few segments of the Bay Area’s housing market were hit as hard during the pandemic as San Francisco condos. From February 2020 to February 2024, the city’s single-family home values declined on average from $1.44 million to $1.36 million, about 5.5%, according to data from real estate brokerage site Zillow.

But over the same four years, San Francisco’s condo values dropped by more than twice that rate, 12.8%, from $1.14 million to $997,000.

That was the second-biggest value drop among any city in the San Francisco and San Jose metropolitan areas. Only East Palo Alto had a larger decrease — about 16.6%, from $822,000 to $686,000.

Meanwhile, condo values in suburban cities including Livermore, San Ramon and Dublin have increased rapidly since the pandemic began. In Livermore, values rose 36.7% from $572,000 to $781,000.

The condo trends largely followed the overall movements across the Bay Area’s housing market. Buyers, especially those able to work remotely, have shown less interest in urban cores such as San Francisco in favor of cities where they can get more square footage for their money.

But Chris Lim, a luxury property specialist with Christie’s International Real Estate, said a surge of sales is coming. Workers at upcoming tech arrivals such as OpenAI are already touring downtown San Francisco condos, he added, preparing for their companies’ hybrid work policies by taking advantage of the dropped prices.

“There’s incredible value going on right now, and I think the educated buyer recognizes that now is an opportunity to purchase,” Lim said.

Patrick Carlisle, chief market analyst at Compass, said he believes San Francisco condos will experience a “significant rebound” this year, pointing to Compass data that shows the median price for a San Francisco condo from December 2023 to February 2024 rose by about 5.6% from the same period in 2022-23.

Carlisle said San Francisco’s downtown condos — many of which have remained vacantfor months — could start filling, too. Condos in the area generally sell for $200,000 to $300,000 less than in the rest of the city, according to Compass data, despite generally being bigger and newer.

Some of that difference has to do with the downtown area’s economic and social challenges, real estate agents said. And downtown condos can have homeowners association fees in the thousands of dollars, warding off potential buyers sensitive to monthly costs.

But downtown condo prices have been creeping upward since the beginning of the year, though they haven’t grown as much as in the rest of the city, said Krysen Heathwood, a senior managing director with Compass’ marketing unit.

It’s uncertain how much San Francisco’s condo prices could rise this year, if the recent increase holds. Carlisle said it’s unlikely they’ll reach the same levels they did in 2022, when low mortgage rates sparked a market boom. But Basham said he wouldn’t be surprised to see condo prices hit record heights.

“I think buyers are realizing…that if they don’t buy now, they’re going to be paying more for the same thing in a month,” he said.

Some buyers could continue to focus their search away from San Francisco, where square footage comes at a premium. Danny Kang, a Pleasanton-based real estate agent with Coldwell Banker, said the Dublin condo market has taken off, with many of his clients pursuing the city’s relative affordability.

Most home shoppers still prefer houses, Kang said. But the Bay Area’s notoriously tight inventory has pushed some buyers — particularly first-timers — to consider condos instead.

There’s still a lot to draw buyers to San Francisco, Basham said. The city’s nightlife and social scene attract condo buyers, he said, who tend to be younger workers. And in the long term, said Lim, the Christie’s International specialist, those homes will surge in value like those in the city historically have.

“San Francisco always figures itself out,” Lim said.

Ready To Make Your Move?

 

CONSULT WITH A LOCAL LENDER AND OBTAIN PRE-APPROVAL

› This is essential before making an offer, and can take anywhere from a few days to a week or more. Consider speaking with more than one lender and making them compete for your business. Having your loan file already reviewed by the underwriter will allow you to make a stronger offer. If you plan to stay put in your new home for only a few years, choosing an adjustable-rate product will lower your interest payment. Contact us and we can point you in the right direction.

GET FAMILIAR WITH HOMES FOR SALE AND RECENTLY SOLD

› Homes today are more likely to sell at or near the asking price, but this is by no means a rule. Egregious underpricing is still a common strategy used by sellers and their agents to attract interest (and multiple offers). Be willing to compromise on your wants — if you wait to find the perfect home, you’ll be waiting forever. You can upgrade and personalize a property but you cannot change its location.

COMMIT TO ONE AGENT AND TOUR HOMES TOGETHER

› Let’s talk! There are dozens of off-market and coming soon listings in San Francisco which are not marketed to the public. Properties in San Francisco are not straightforward and value isn’t always obvious. Your agent should always see any property that you may consider purchasing. They should also obtain the seller’s disclosure documents, actually read them, and review them with you as part of your due diligence. Whether you make an offer or not, consider it education.

MAKE THAT OFFER, BABY!

› Buyers today have an opportunity to negotiate price and all sorts of terms. The worst that can happen is that the seller says no. If your offer is not accepted outright, you can try to find middle ground, agree to everything the seller wants, or choose to walk away. In San Francisco, buyers and sellers use a purchase agreement and other standard forms not used outside the city. Working with an experienced agent who knows them inside and out, respects the local customs, and presents a buttoned-up offer on your behalf will give you an advantage.