Let 2022 Begin
Many predicted the San Francisco housing market would crash due to the COVID-19 pandemic closing most businesses. Yes, certain segments slowed or slumped, but other segments rose rapidly. For instance, single-bedroom condos and two-bedroom homes took a 20-30% hit, the three-bedroom homes and larger ones increased by almost the same amount. Then with inventory hitting decades-long lows, and the job market red-hot in San Francisco, these buyers set out to get space. While many people headed to the suburbs, the majority of those were renters and owners of luxury condos that could afford to leave with not many issues. So yes, in 2021 the suburbs became popular, and demand outstripped supply. But in mid to late 2021, employers started telling their employees they would need to come back to word in 2022 full time, or in a hybrid model. This led to a rapid rise of buyers and renters into SF in late 2021. Even now in January, many Bay Area residents have yet to return to an office or move back. Traffic is still less than it was pre-pandemic. But as more and more workers return to work and the 30–45-minute commute turns into the 1-2 hour commute it used to be, more workers will be reconsidering their move to the suburbs and head back to SF. So what’s next for the San Francisco housing market?
It’s still going to be a seller’s market
Every real estate agent I have talked to or worked with spoke with agreed that 2022 is still probably going to be a strong seller’s market. Despite interest rates inevitably raising, the demand for San Francisco homes will still outstrip supply, especially for single-family homes and multi-bedroom condo segments.
It used to be that if you are going to put your home on the market, wait till spring. Not anymore. It’s only January and we are still seeing buyers rushing to put their bids in on everything that is hitting the market. Currently, the median DOM for non-luxury properties is under 2 weeks and the bid price is exceeding 20% in some segments.
The Fed has been very clear on interest rates are going up this year. When the Fed follows through, buyers and sellers are going to have to understand the implications. People will not be able to borrow as much money as they had. Some think this threat is going to create a sense of urgency for the first half of the year. As an agent, I can see how my buyers are already starting to feel the pressure.
For sellers, does that means the time is now? I think it certainly would be wise to prepare your home and think about selling now if you want top dollar. I imagine the second half of 2022 could taper off demand slow demand and make it harder to sell a home as fast and for as much as it did when rates were less than inflation.
But keep in mind, even at 4%, that’s still pretty low from a historical perspective, especially in San Francisco. I still think there will be more demand for homes than there was last year, but I don’t see this trajectory of 7% year-on-year growth continuing as the rates do go up.
Surge in Rent
The rental market in San Francisco has already seen a dramatic increase since Spring. For instance, 1 bedrooms in SoMa's luxury apartment "The Paramount" was advertised for $2,500 per month last spring, yet now the cheapest one listed is advertised at $4,100 per month. San Francisco was one of the only places in the country where rent has yet to creep back up to pre-pandemic levels. In fact, San Francisco lost its throne as the most expensive rental market in the country to New York. I imagine it’s due to the Bay Area’s embracing of remote work amid the pandemic. That said, Google, Facebook, Apple, and others have said they are bringing employees back into their offices this year.
Since Bay Area companies have been very amenable to remote and flexible work, this will continue to impact neighborhoods differently. For instance, SoMa may remain at pre-pandemic levels while western neighborhoods may keep their gains and continue to grow.
Space is still a must
Even as people grow tired of their Peloton bikes and “Zoom Rooms” none of the clients I have worked with indicate they are willing to give them up. It seems the desire for home offices or gyms became a new must-have. It’s now an expectation for many buyers now.
I still have the feeling of uncertainty that still lies ahead as we continue into the next phase of the pandemic. Clients are anxious to see what it all is going to look like when we are back in the office and COVID numbers are no longer the central point of discussion. However, with a new variant being discovered every few months, I don’t see this happening any time soon.
I do see the rate at which home prices are increasing slowing down a bit. But will it reverse course and the values of homes lower, I imagine not. I think at the end of the year we will see interest rates higher, less, but still very willing buyers.