Go Niners…oh, and Initial 2020 Leading Indicators in SF Peninsula Real Estate

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Welcome to a New Decade

How about them San Francisco 49ers?! The start of a new year means NFL playoffs, and this year, our Niners will be going to Miami to take on the KC Chiefs in the Superbowl. Usually around Superbowl weekend is when Bay Area real estate traditionally picks up with respect to new listings and more buyers actively looking; this starts provides us with some preliminary data points on how the SF Peninsula’s spring selling season may evolve. This post will be broken down into various categories highlighting some leading indicators as well as risk factors.

Robust Stock Market

Wow, my retirement stock portfolio and my children’s 529 college fund look better now than a year ago. In 2008, the Dow Jones Industrial Average (“DJIA”) closed down by 33% to 8,776. There has been a 10 year bull market and as of 12/31/18 closed at 23,327 which was down slightly by 5.6% in 2018. That’s where the story ends, right? A 10 year economic expansion finally slows down. Wrong.

In 2019, the US experienced incredible stock market growth across all classes of equities.

DJIA+22.3%
S&P 500+28.9%
NASDAQ+35.2%
2019 gains

What does this significant increase to equity investments potentially mean from a real estate perspective?

  • Wealth building to help with down payments
  • Corporate America financial strength means more jobs, higher wages, less unemployment for more potential buyers
  • Within high technology oriented SF Bay, this also is correlated to startups getting private funding to fuel growth, possibly higher valuations for founders, facilitate liquidity events, and create more jobs which then attracts more people into the area
  • There is also a psychological effect for both buyers and sellers in providing confidence in the economy

Interest Rate

Exactly 3 years ago January 2017, I wrote a blog post about year of uncertainty and a historical outline of mortgage interest rates for 30 year fixed. Around that time, rates had crept up to above 4% which I commented is still considered very low by historical standards. Today, Fannie Mae is showing approximately 3.1-3.2% average 30 year fixed which is crazy low.

https://taosiliconvalley.com/2017/01/20/2017-the-year-of-uncertainty-with-mortgage-rates-stock-market-and-the-new-president/

I have buyers closing on a fantastic house in San Mateo in past week on a jumbo loan; they closed with a 30 year fixed rate at 3.0% which is the lowest I’ve ever seen. What does this mean for buyers, with lower interest rates, mortgage payment calculations for qualifying for mortgage amounts is lower and thus allows for higher purchasing power. Rates are incredibly low right now.

The 2020 IPO Pipeline

Last spring, I wrote a post about the 2019 IPO pipeline and what I felt was a more realistic impact to the local real estate prices. I believe my general thoughts were fairly accurate. Uber/Lyft/Pintrest/Slack were some of those companies with big exits, but also saw underperforming stock performance post-IPO. They were still highly beneficial for those employees who got liquidity events.

https://taosiliconvalley.com/2019/04/22/huge-2019-san-francisco-ipo-pipeline-speculations-abound-on-impact-to-real-estate-prices/

In 2020, there is another wave of companies expected to file their S-1 (SEC filing to go public). Some well known names include gitlab, snowflake, credit karma and airbnb. There year is young, much can change, but if some of the expected companies do go public this year, we will see some impact to real estate prices in the area and it’s also an indicator of the continued strength of the economy/stock market lending itself well to overall real estate market.

Google/Facebook Effect

ONE TRILLION DOLLARS. Let’s let that sink in. TRILLION, not Billion with a B but Trillion with a T. Let me see if my old school (non common core) math still works. That’s 1 MILLION MILLION dollars (yes, I actually ended up using calculator to confirm). That’s the current market cap of Google who has a huge presence in SF, Peninsula (their youtube business based in San Bruno) and South Bay.

Then, from a Peninsula perspective, Facebook is about to move a large Oculus business unit into Burlingame Point a now 1 million+ square feet of new office space east of 101 freeway. Ugh, I think it’s safe to say we will see some additional traffic on 101, and more people wishing to live in mid-Peninsula and SF.

https://taosiliconvalley.com/2018/08/23/the-google-facebook-effect-coming-soon-to-mid-peninsula-real-estate/

And The New Year Begins

The first handful of listings have come on market the 1st week of January, and gone into escrow with multiple offers. I know of several SFR with list prices between $1.4-1.7 million range in Belmont, San Carlos and one in Central Richmond of SF that had 3+ offers.  And I also know each of the property had over 20+ disclosure packages requested which is an indicator of interested, and qualified buyers who had that as a budget. The interesting data point is that we know at the start of January, which is still a slower time of year that there is quite a large number of buyers who are actively looking for properties.

Fear not for buyers who wish to purchase in a competitive market. My last few buyer clients successfully purchased their houses with significant competition of 4 offers, 7 offers, 7 offers and one we were able to purchase off-market. There are a lot that goes into being competitive above and beyond just price. I also know of many fantastic houses coming on the market, including one of my upcoming listings of a SF house on a premium street in a great neighborhood.

Black Swan Risk Factors

Things can and do sometimes change quickly. We know there are no guarantees with respect to stock and real estate market. Although many of the current indicators show positive continued data, there are also macro conditions that can affect consumer confidence. Below are a few examples of situations that may affect the markets.

  1. United States get into further and deeper international conflict 
  2. Trump impeachment developments
  3. 2020 is a Presidential election year so people tend to be more nervous about future direction of US

Contact

As always, contact Peter Tao at peter.tao@cbnorcal.com if you ever wish to talk real estate.

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