My SF Peninsula 2022 Real Estate Predictions Based on a Busy 2021 Year

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Reading many so called “experts”, “analysts”, and fellow Realtors predictions for residential real estate in the SF Peninsula market over the past weeks leads me to write my annual end-of-year/start-of-new-year observations and predictions. 2021 was one of my busiest years as a Realtor in the SF Peninsula and I expect strong deal flow in 2022. The following are 7 major topics often discussed in mainstream media – some of which I concur with but others I believe to be significantly overblown or will not materially affect our local markets.

Source: Mortgage Bankers Association
  • Current run up of real estate price appreciation is only minimally due to low interest rates – although a lower interest rate is a mathematically positive factor, other macro factors significantly influence pricing in our area more than rates. A very large number of Bay Area buyers have some combination of savings due to frothy stock market allowing for high down payment and/or well paying high salaries, so potential creep up with rates will not affect price points as much as most people are predicting.

  • People moving out of the Bay Area has had minimal impact. A couple of my seller clients in 2021 moved to other states. The supply and demand imbalance quickly absorbed any small incremental new inventory due to a geographic move.
  • There continues to be a high demand, low supply imbalance going into 2022 for single family residences. I am aware of an influx of listings coming on the market in the next few months, but there are also many buyers who were not successful in purchasing a home in 2021 and some new buyers ready for aggressively look in 2022. The link is my most read post that still gets dozens of random readers who find it through Google organic search. https://taosiliconvalley.com/2013/08/26/microeconomics-101-for-real-estate-2/
  • Many people in SF Peninsula work in high technology and have high liquidity from a frothy stock market and the many 2021 local IPOs. Buyers have capital for a large down payment making for increasingly strong buyer profiles – this is unlike in 2007-2008 at the height of the last market boom where many buyers “qualified” for large subprime loans with minimal to no down payment. There has been a softening of Nasdaq to start 2022 so we will see what happens to the broader financial markets.
  • Location and lot have always been arguably the most important factor in real estate; the pandemic may have put even more of a premium on those factors as homeowners value a nice outdoor space in good locations. Where I have seen very high sale prices often were with houses that had large flat lots and/or views and/or premium locations.
  • As I wrote in a recent blog post article, construction costs and project timelines have increased precipitously. All contractors and suppliers are backed up thus making even cosmetic remodels much more challenging and expensive. Thus, move-in condition houses in good locations command a premium relative to fixer uppers.  https://taosiliconvalley.com/2021/09/23/real-estate-construction-costs-skyrockets-in-sf-peninsula-what-is-impact-to-real-estate-prices/
  • I helped several clients purchase rental property or 2nd homes in 2021 as they seek to diversify their investment assets while taking advantage of low interest rates. Many residential agents, even top producing ones would not know how to advise on cap rates mean and its interplay between appreciation potential vs near term cash flow as well as understanding of property management and leasing. Here is one of the first blog posts I wrote 8 years ago on an “investment that didn’t make sense for a friend’ that helped articulate some of the many variables on buying an investment property. https://taosiliconvalley.com/2013/12/06/an-example-of-a-real-estate-investment-that-just-didnt-make-sense/. The 2nd home markets like Sonoma/Napa, Lake Tahoe, Monterey/Carmel real estate values skyrocketed in 2021, from the many Bay Area buyers.

The start of 2022 will be quite interesting to say the least. The initial group of properties that hit the market in the 1st couple months will really set the tone of this year. This article represents my personal insights and not related to any companies I am affiliated with. Additionally, the local markets can and will change rapidly due to macro and microeconomic factors. Thank you to my clients and friends who worked with me and/or referred me to their friends in 2021. I look forward to hearing from many of you in 2022 and get an update how you are all doing.

I can be reached at peter.tao@cbnorcal.com.

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