We are currently in one of the most challenging real estate markets that I’ve ever experienced in my 20+ years selling real estate in San Francisco—without a doubt. And that’s making buyers question any motivation whatsoever for purchasing a home.
I get it, and realize it’s hard to work with those high mortgage interest and insurance rates. When you’re looking at spending two to three times more than your current rent and facing the prospect of working with the handful of insurance carriers left who cover California to get a decent policy in place that won’t completely break the bank, it’s easy to shrug it all off and postpone your buying plans. Affordability is lower all around, and it may make sense for you not to dive in if you can’t afford a home that’s anywhere close to what you need in terms of space and location.
But I do have some encouraging words for those intrepid buyers who don’t want to put off their purchases. The upshot is that there’s less competition from other buyers at the moment, and homeowners who need to sell will do so at what the market will bear. (Those who don’t need to sell are staying put for now, which is contributing to our lower-than-usual inventory level.) Fewer offers on properties translates into less crazy overbidding and stratospheric prices.
Yes, there are instances of significant overbids, but that’s not a citywide pattern and those big bids are mostly for totally updated single-family houses with nice yards and parking in prime locations. For example, 36 of the 185 homes reported sold in October did so for 20% or more over the list price. But everything else was overbid by much less, and some homes sold for under asking.
The condo market is particularly soft, with average pricing more around 2016 levels. Of the 150 condos that sold last month, only five closed for 20% over asking and the average condo sold for below asking.
So if you can qualify for a loan and would like to invest in a home, now is a good time to purchase what you can afford. My personal belief is that interest rates will eventually decrease, at which time you can refinance to a lower rate. And I can only hope that the state government and insurance industry will get their acts together to provide consumers with a more normal and less stressful insurance situation. I’m not expecting premiums to suddenly drop like a rock, but there will be more carrier choices on the horizon which should level the playing field with respect to coverage and costs.
I remember back in 2008 when the recession hit and buyers spent the time from 2008 to mid-2012 sitting on the fence and waiting for home prices to drop. Loans were challenging to obtain, less cash was flying around and the economy was pretty shaky. But prices then started to climb and many buyers were kicking themselves for not jumping in to get a deal. Granted, market conditions are a bit different now with respect to the challenges we’re facing.
Still, I can’t help but think that buying what you can afford now will end up being a strategic and sound decision when you look back five years from now.