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January 11, 2016

More Balanced Market Ahead in 2016

Fewer extreme overbids and stable values are most likely in store for the San Francisco real estate market in 2016.

After another freewheeling year of steadily climbing prices, buyers throwing money at sellers and cash sales continuously taking the prize, it’s widely believed among the Realtor community that 2016 will be a much more balanced market.

Here’s what I expect will happen this year:

There will be fewer extreme overbids. There were plenty of homes that saw 15+ offers in December, and which will close for 25% or more above list price. But a majority of properties sold for closer to five percent (condos) and nine percent above asking (houses). I believe these averages will guide buyers in the new year.

Home prices will moderately increase. Interest levels are on the rise, and tech stocks may not enjoy another whirlwind year. But the old supply-and-demand issue will persist, resulting in moderate price jumps (particularly in the $2.M-and-under range).

The 30-day close will be more common again. 21-day closes became the norm for buyers with loans over the past two years. But in the later part of 2015, lenders had to work within the confines of new loan processing regulations requiring extra time toward the end of the transaction for disclosure approvals. Buyers will increasingly make sure their contracts give them the time needed to close their sale.

Cash sales will taper off. Yes, we’ll see our share of foreign and tech buyers flush with cash. But I can’t ignore the fact that for the first time in a long while, cash sales accounted for less than a quarter of house and condo sales in November and December 2015.

Homes will take longer to sell. We’ll see our fair share of sellers looking for unrealistic prices in a less frenzied market, which means some properties will sit on the market for a while before they ultimately sell.

Contract contingencies will return. Waiving loan, appraisal and financing contingencies in contracts on a widespread level started in 2014, and became the norm last year. However, the tide will turn in 2016 as buyers lean on contingencies a bit more. If San Francisco’s market is not as “hot” as it was in 2015, there will be less of a reason to assume unnecessary risks.

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