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There was quite a bit of uncertainty at the start of 2023 about where real estate markets would go. One word, Supply and Demand….wait, that is three words. My most popular article Microeconomics for Real Estate I wrote in 2013, exactly 10 years ago, continues to get dozens of viewers every day due to being highly ranked in the Google SEO algorithm. To overly simplify, there is low supply amidst moderate demand for the following reasons:

DEMAND

While there are a good number of (potential) buyers out there, some percentage of them are unsure what to do given economic factors, such as interest rate, stock market and their own employment. There are highly qualified buyers interested, some are motivated while some are taking a cautious approach. There is moderate demand, although lower than post pandemic and prior to the current interest rate/inflationary spike.

SUPPLY

The move-up and down-size Buyers have significantly decreased due to the higher interest rate situation. Most owners have rates locked in at 2.5-4% with a lower property tax basis (in California). To purchase a larger home would mean to get a mortgage at 6.5-8% with a higher property tax basis; it would be a large financial step-up than in recent times. This dynamic puts a constraint on the supply side of the local real estate market.

PRICING MOVEMENTS

In a typical supply and demand curve, usually a low supply and moderate demand situation would create some price increases. In a “hot” “sellers market” which we’ve seen in many of the years over the last 8+ years, prices are increasing across all segments of the real estate market in the SF Peninsula market – condo, single family, multifamily, various cities, neighborhoods, starter, luxury. In 2023, we saw a real segmentation of pricing and demand – a flight to “quality”. By “quality”, single family residences that had some positive combination of nice move-in condition, good location, zones to popular schools, usable nice lots/backyard were the ones that saw multiple offers with some price increases from 2022.

Unlike past years in a really “hot” market, even with lower supply of listings, there were many properties that did not sell right away, sat on the market and/or went through price cuts. Because there were a lot of careful buyers out there, many buyers were more conservative in how they approached purchasing and preferred to wait for more attractive properties rather than making offers on a property that may have some major negative characteristic.

STRONG DEMAND EXAMPLE

The “Hallmark” neighborhood within Belmont Woods in Belmont up saw every (only 6 total) SFR sold in 2023 at $3.0 million and higher. See summary chart:

ADDRESS	BD	BA	SQ. FT.	LOT SIZE	SOLD PRICE	COMMENTS
23 Somerset Ct.	4	3.5	3,020	21,900	3,300,000	Big views, at trails
2884 Wakefield Dr.	4	2.5	2,220	17,352	3,100,000	Terraced sloped lot
2558 Somerset Dr.	4	3.0	2,672	7,040	3,200,000	Move in
2609 Somerset Dr.	4	2.5	2,760	11,915	3,420,000	Needs work, big flat lot
2741 Waltham Cross	4	3.5	3,427	10,241	3,608,888	Renovated, with pool
2759 Waltham Cross	4	2.5	1,820	12,235	3,000,000	Original, big flat lot

Hallmark has always been popular, but why has this pocket of homes in particular withstood macroeconomic conditions more so than most neighborhoods?

• Typically above average size lots, some with views
• Near waterdog park and cross country trails, wide streets with sidewalks
• Neighborhood built from late 1960s to 1970s so floor plans of houses tend to be very appealing with vaulted ceilings so spacious interior feel w/curb appeal
• Highly-regarded Belmont-Redwood Shores school district
• 4 of the houses sold for multiple offers; 2 of the houses actually did not sell right away and went through price cuts due to being aggressively overpriced when first listed. Pricing appropriately is still extremely important in any market. 

SOFT DEMAND EXAMPLE

There have been numerous articles regarding the city of San Francisco and the challenges since the pandemic. While the SF condominium segment was particularly affected in 2021-2022, we did see SF condos as a whole stabilize in 2023 given the low inventory environment. A neighborhood still recovering though is West part of South of Market (“SoMa“). A few fundamental reasons:

• Residences often work in financial district or start-up high tech area of South Beach and employees generally no working in offices yet
• Mid-market corridor of SoMa which has been a economic redevelopment area lost many major high technology company tenants that employed many professionals
• Pre-pandemic, SoMa saw a huge new construction boom of mid-rise condo projects saturating the western part of Sout of Market near mid-market area with inventory/supply

We know the markets go up and down and areas see growth and weakness. A key question is timing. Could this neighborhood be a buying opportunity in the near future from an investment stanpoint or is it still too early? There are just so many variables and nuances to consider which is what makes real estate so intersting to me and why understanding the MICRO-markets and balancing it with understaning of the macro financial marketsso important

MY 2023 REAL ESTATE SUMMARY

Sales volume is down YTD 2023 vs. 2022; preliminary estimates I am hearing has volume decreasing up to 20% year-over-year decrease of total volume in various part of SF Peninsula. I am so thankful for my clients and friends who trusted me this year, and who also referred me to their friends and family to navigate an uncertain, nervous marketplace due to higher mortgage rates that really changes the dynamics of the market. I will once again be top 8 in my Coldwell Banker office of 150 licensed Realtors.

As always, the opinions written in my articles are my personal opinions. Please feel free to contact Peter at peter.tao@cbnorcal.com anytime to brainstorm anything real estate, Warriors, Niners, local dog parks, schools, and/or restaurants. 😀 My next article will be about my forecast for 2024 SF Bay Area real estate markets. Thus, to be stay up to date on my thoughts, upcoming listings and interesting real estate news, please “like” my Peter Tao Real Estate Facebook Page. Happy holidays!