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January 2, 2014

Ten SF Real Estate Predictions for 2014

Welcome to another exciting year in San Francisco real estate. If you’re reading this, there’s a good chance you’re interested in buying or selling property. So it’s important that you understand what to expect in 2014.

In 2013, we experienced the return of extreme multiple-offer situations, consistently low inventory and many homes recovering equity after the economic downturn. New construction began blanketing the city and many new developments are in the pipeline.

So what’s on tap for the new year?

I have a few ideas:
1. We’ll be seeing a more balanced market. We hit our peak in the summer of 2013 with wild buyer behavior and sellers flabbergasted at the prices they were being offered. But with the holidays cooling things down and buyers gaining some perspective, I’m predicting I’ll have fewer entrants in the SF Overbidders Club this year. Higher mortgage rates are widely expected, and more supply created by new construction and fewer underwater homeowners will keep things even.

2. Inventory will hit the market right away. “After the Super Bowl” has traditionally been the timeframe that has ushered in new inventory. However, January 2013 offered new inventory immediately, and I predict that January 2014 will be no different. I’m already seeing off-market listings being promoted among my colleagues for early January showings, and many agents are reportedly holding new listings back until mid January. Sellers want to capitalize on the strong market presented in 2013.

3. Home values will experience modest increases. The average citywide price for a single-family home was $1.3M+, and just above $1M for condos—well above the averages of most other cities in the United States. But demand continues in San Francisco, especially in popular, central neighborhoods near public transportation, retail areas and services. We’ll see appreciation in the 3-6% range.

4. Competition will still be fierce among buyers. There will be multiple offers on most homes. A whole new crop of buyers will be entering the market this year, and there are only so many properties available. I’ve already met with half a dozen prospective buyers in late 2013 who are ready to get going, and I’m sure my experience as a Realtor isn’t isolated.

5. The luxury market will make a strong showing. More than 350 houses and 120 condos sold for more than $2M in 2013, and one TIC even sold for just under $4M. San Francisco attracts local and foreign luxury buyers, and will continue doing so this year.

6. The “list low, sell high” strategy will prevail through 2014. Houses sold for an average of five percent above their list prices in November-December 2013, and condos for approximately four percent over. (Buyers frequently paid 20%+ for homes with all the amenities in hot neighborhoods like Mission Dolores/The Mission; Noe/Eureka Valleys and Bernal Heights.) This activity is the direct result of sellers listing their homes below true market value in order to create bidding wars, and the strategy paid off handsomely in most cases. There’s no reason to think it won’t continue this year.

7. The TIC market will remain stable. The restrictive condo conversion legislation passed in San Francisco in 2013 didn’t seem to have had an impact on the number of tenancy-in-common (TIC) units sold. A total of 341 TIC units changed hands in 2013, which was only slightly less than in 2012 (357 sold).

8. More southeastern neighborhoods will have their breakout years for owner-occupier buyers. Though neighborhoods such as Bayview, Visitacion Valley, Portola, Crocker Amazon and Silver Terrace aren’t typically where most home buyers start out looking, the reality is that these are the neighborhoods where you can still purchase a single-family home for well under $1M. My clients purchased their first house in Crocker Amazon last month, and they used an FHA loan so they could reserve their cash for fixing up the property. We had to prevail over 18 other buyers who submitted offers, so it’s clear that the southeastern portion of San Francisco is catching on.

9. Cash sales will continue in notable volume. About a quarter of house and condo sales in the city were sold in cash transactions in 2013. Foreign investors and the tech sector will again drive cash sales in 2014.

10. New construction condos in central San Francisco neighborhoods will cost you well above $1,000/sq foot. Several condo developments along the Market corridor and in Hayes Valley sold out quickly with prices averaging $1,000/sq foot or more. In the hot Mission district, it was more like $1400/sq foot. These sales results will set the bar for 2014 new development pricing. After all, there are plenty of people who love new, shiny finishes, not having to worry about maintenance and transit-rich, central locations. And they will pay a premium for the opportunity to live in a building that delivers all three of those qualities.

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