BY: Noopur Gupta, January 6, 2023
The Bay Area housing market, known for its high costs and competitiveness, experienced a slight slowdown in 2023. As interest rates reached their highest levels in 23 years and tech industry layoffs impacted the region, buyers pulled back, leading to declines in home prices. Although San Francisco may not witness a true buyer's market due to limited housing inventory, real estate experts suggest potential opportunities that haven't been seen in years.
The outlook for 2024 remains uncertain, but it promises to be anything but dull for those involved in renting, buying, or selling in the Bay Area. Five real estate experts shared their predictions for the housing market this year.
There is optimism for a decline in mortgage rates.
A key factor that could positively impact the Bay Area housing market, as well as the national market, is a potential decline in mortgage rates. Experts anticipate this shift as inflation cools down, offering benefits to both buyers and sellers. Jennifer Branchini, the President of the California Association of REALTORS®, noted in the organization's annual prediction report,
"A more favorable market environment with lower borrowing costs, coupled with an increase in available homes for sale, will motivate buyers and sellers to reenter the market next year. First-time buyers who were squeezed out by the highly competitive market in the last couple of years will try to attain their American dream next year."
CAR anticipates a decrease in rates to approximately 6%, a notable improvement from the peak exceeding 7% observed in 2023.
Alternative financing methods may see increased popularity as traditional options become less prevalent.
Non-traditional financing options may become more prevalent as a result of the rise in interest rates, leading to decreased affordability for buyers and rendering home purchases unattainable for some. In response, individuals are exploring alternative financing methods to remain in the market. While many are familiar with conventional 30-year bank loans, fewer are acquainted with concepts like seller financing or assumable mortgages. According to Naomi Lempert Lopez, a real estate agent with Coldwell Banker Realty in San Francisco, there are numerous benefits to adopting "creative" financing. She noted, "When we didn’t need it, we didn’t consider it. We are definitely seeing seller financing and seller [rate] buydowns, and that’s going to continue. That’s a favorable trend."
Even upscale developments embraced rate buydowns in 2023, providing buyers with relief in initial monthly payments until rates decrease and they can refinance. Kelley Krock, a Redfin agent focusing on the East Bay, emphasized that unconventional financing options are sometimes crucial in closing deals in today's market. She remarked, "The market’s not dead; we just need to approach it differently. They’re not new ideas."
Except for downtown San Francisco, the market won't favor buyers.
Buyers and sellers alike have had to modify their expectations due to the changing dynamics of the housing market, with individual factors playing a crucial role in many transactions. Naomi Lempert Lopez commented, "We’ve gotten so used to a white-hot seller’s market, and we’re not in that anymore. Good properties that are well priced and well positioned will sell, but it’s more of a hot market than a white-hot market."
Navigating the current market remains challenging, but according to Lopez, there are more opportunities available than before. In the past, during the "white-hot" days, buyers had to waive all contingencies or present an all-cash offer to secure their desired property. Now, a buyer may still have a chance to succeed with a financial or insurance contingency attached to an offer.
In contrast, downtown San Francisco is undeniably a buyer's market, as noted by Lopez. The surplus of supply compared to demand is driving prices down in that area.
Insurance policies have the potential to impact the market significantly.
In 2023, the withdrawal of several insurance companies from California created ripples of concern among homeowners statewide. AllState and State Farm specifically pointed to the escalating risk of wildfires. However, smaller companies exited for various reasons, leaving both existing homeowners and prospective buyers with limited choices. Amanda Jones, a Compass real estate agent with two decades of experience in San Francisco, emphasized the volatility of the insurance aspect. She mentioned that, in her 20 years in real estate, she had never witnessed new buyers having to contact more than 20 insurance companies just to secure a policy.
Jones highlighted the increased complexity and stress in the homebuying process, revealing that some insurance companies revised their guidelines, excluding many homes. For instance, certain companies stopped insuring houses with knob and tube wiring, a common feature in homes constructed before 1940. This development is not only affecting properties in wildfire-prone areas but is also making some homes practically unsellable unless purchased with cash, according to Jones.
The recovery of San Francisco rents remains elusive.
The rebound of San Francisco rents seems unlikely, bringing some positive news for potential renters, as experts foresee a continuation of relatively stable rental prices. San Francisco, no longer the most expensive city in the country, may even further descend on the list of the nation's priciest cities. However, Zumper CEO Anthemos Georgiades pointed out that the city's persistent presence on the expensive cities list is due to its limited housing inventory. Despite a sluggish demand in San Francisco, a significant drop in rental rates is hindered by the scarcity of supply.
Georgiades characterized the situation as a "tale of two cities," noting that while neighborhoods like the Outer Richmond have experienced over a 10% increase in prices, areas like SoMa have witnessed substantial declines.
According to Chris Salviati, a housing economist with Apartment List, San Francisco had one of the slowest rent price growth rates in the nation in 2023, and he believes this trend is likely to persist in the current year. Factors such as a sluggish national economy, even if perceived, and the upcoming uncertainties of an election year can discourage people from relocating, whether it be finding a new rental or making the leap to homeownership.
According to Chris Salviati, a housing economist with Apartment List, San Francisco had one of the slowest rent price growth rates in the nation in 2023, and he believes this trend is likely to persist in the current year. Factors such as a sluggish national economy, even if perceived, and the upcoming uncertainties of an election year can discourage people from relocating, whether it be finding a new rental or making the leap to homeownership.
The upcoming year appears to be defined by uncertainty, spanning areas such as interest rates, the impending election, or the overall health of the economy, irrespective of whether one is renting, buying, or selling.
