Most of 2023 saw a substantial real estate sales volume decline due to inflation, interest rate spike and uncertain macroeconomic conditions. My buyers who purchased in 2023 did so under nervous pretenses, and are now ecstatic they did so as they got fantastic properties with less competition.

Many buyers who were on the sidelines in 2023 came out in the first 7 months of 2024 in the SF Peninsula residential market. Does this surprise anyone? Why might this be the case as many of the same negative factors were still pervasive? For my personal realtor business, while the Q1 was slow, Q2 and the start of Q3 have been busy including one listing in San Mateo that received a whopping 17 offers that achieved 40% above asking price and had extremely happy sellers and buyers.

3 Reasons for Current Market Conditions in SF Peninsula

1) While interest rates are still high relative to a couple years ago, buyers now realize the days of being below 4% are not projected to return anytime in the near future. If buyers want to be a homeowner and enjoy a permanent residence, they need to just factor into their budget a higher mortgage payment. With that being said, I provide context that a) if rates do drop, they can refinance their mortgage and lower payments, and b) if rates drop, all buyers will qualify for higher mortgage and thus be able to be more aggressive on price which may impact pricing.

2) In our SF Peninsula area, there is a heavy concentration of buyers who work in the high technology industry or whose work is dependent on this industry. The NASDAQ stock market has been way up over the past year, just dropping a bit the last few weeks. As of 8/6/24, NASDAQ is up YTD 12% and past year 18%. Those with restricted stock units (“RSU”) or stock options may have healthy equity portfolios allowing for a much higher than normal down payment thus mitigating some of the pain of a higher interest rate. For example, in my listing with 17 offers that was a single family residence geared for mostly 1st time buyers, around 14 of them had down payments of greater than 30% with 3 of all-cash.

3) Sounding like a broken record, we continue toes low inventory. While item 1 above is a slight deterrent for 1st time buyers motivated to “get into the real estate market”, the economics and motivations may not be as strong for the “move up buyers” who already own and live in a home and have a low interest rate of 3% and a lower property tax basis locked in. When the “move up buyers” segment is slower, this then impacts the supply of homes at the lower price points for 1st time buyers.

Buyers Are More Selective

Unlike the 2021-2022 cycles when it seemed every property received 10+ offers, this year there are some properties that don’t sell right away or even go through a list price cut. Even though buyers are back and motivated, they are still cautious and waiting for the right property. Here are some reasons why a property may not sell right away in our current conditions:

Location – The property has a major “negative location issue”. Every buyer has different considerations of what they may consider negative and everyone has different sensitivities. A property with a negative location will still eventually sell at some price point.

Fixer Upper and/or poor floor plan – With many buyers stretching to buy, most do not want the investment in time, expense and stress of going through a major remodel. A fixer upper in a good location and lot will still have a lot of interest, but would skew more towards investors/developers. One of the strategies I like to propose to my sellers is to invest some budget into doing some preparation work prior to staging and listing to make sure buyers can visualize moving into the home right away even if there are some parts that will need renovations in the future. Of course, the totally renovated will command a premium with most enthusiastic buyers.

Improper starting list price – In the SF Peninsula, buyers understand that a common strategy is listing a property slightly lower than expected to get the buyers to see the property in person and then create a competitive situation and then get the market price. If a listing is priced too high, compared to other property at similar list price, there may be a psychological component to how a buyer views the property. Once a property sits on the market for an extended period, buyers may start to wonder what is wrong with it

Where do I see the market remainder of 2024?

• While I know there is a pipeline of new inventory coming on the SF Peninsula market in September and October, inventory will continue to be limited.
• From my recent listings at various price points and locations, there are many motivated buyers out there, particularly at the $2.5m and under budget.
• Economists and bankers predict a possible mortgage rate decline in Q4. That does not mean buyers should wait, because some buyers will and may mean more competition or more aggressive buyers if that really happens.
• There is some economic uncertainty on the horizon with recent weeks’ stock market decline, as well as the upcoming presidential elections.

So what does this all mean? I continue to provide perspective to all my clients and friends who ask me when is the “best time” to buy. While some timing when investing in the stock market may be advised, the difference with purchasing real estate is it is also a lifestyle decision above and beyond financial. It is too challenging to “time the market” in residential real estate here in the SF Peninsula. Even if trying to time the real estate market, there are just too many variables coming into play such as will the right property even be available, and then can I even win in a multiple offer situation. Most significantly, what if my prediction of decreasing real estate pricing is wrong, and the market actually increases by 10-20% in a year or two, then I am further away from being able to purchase in the SF Peninsula market.

As always, I always enjoy talking Bay Area real estate and discussing the markets. Please like my Peter Tao Properties Facebook Page. Call, email Peter at peter.tao@cbnorcal.com.