It’s a Buyers Market Out There
What does that mean?
Technically the definition of a buyers market is when there is high inventory of houses and not enough buyers to buy them. Housing supply is high while buyers to absorb the supply is low.
supply high - demand low
San Francisco is a bit different in that there is never a high inventory of houses, there are just more or less buyers out there.
But things are shaking up.
For the last 6 months we had the highest number of withdrawn and canceled listings San Francisco has seen in over 10 years. So why did people stop buying and what happened to all those houses?Why and when does a buyers market happen? How long will it last? And what are my predictions for 2023-2024?
Keep reading to find out
Why does a buyers market happen?
One reason, buyers have stopped buying. But why?
Some reasons we have been hit with in the last year are a spike in interest rates, a decline in the stock market which affects people's down payments and liquidity ,and recent huge tech layoffs.
Other reasons people will not mention is herd mentality and fear.
Herd mentality is a normal thing for human beings to do, biologically we want to feel safe and protected so going against the grain is not our instinct. So when people shy away from buying for their own reasons others will do just for the reason that if someone else is they must know something i don't, so I will stop buying also.
That is backwards. That mentality contributes to high competition or low competition. Aka good deals or bidding wars.
Let's look at the different markets
Condo market has been down for the last 2 years. So it's a great time to get your foot in the door.
The first thing to be hit in a down market are up and coming areas like the bayview and condos.
Single family homes are a bit different. Though there is always more demand for single family homes these also have had a decline.
Compass data shows that in the $3-million-plus sector, sales volume dropped by more than half in November, compared to the same month a year earlier.
According to an article in The Real Deal in December
In the Bay Area, luxury home sales — those priced over $5 million—were hit even harder than the rest of the market, with a 43 percent drop year over year, compared with 37 percent for the general market, according to Compass data. Ultra-luxury homes, those priced over $10 million, have more than 11 months of inventory throughout the Bay Area. In San Francisco, there are 17 months of inventory in that price range.
To summarize, the ENTIRE REAL ESTATE MARKET has slowed down for the past year. No buyers which means left over inventory.
Sellers have slowed down selling because
They either got their homes at a great price and won't be able to sell for a high enough profit because the market is low
It is a bad time and they are waiting until demand picks up
They got their homes at amazing prices, low interest rates, or so long ago they have either refinanced or paid their home off so they don't need to sell, they are waiting to get power again.
When does a buyer market happen?
It happens when there's a big event like an earthquake, a bubble bursting, a huge hike in the market, or a pandemic…Things need to go low to go high again. Buyers markets don't happen for a while and they do not last long. They happen suddenly after a huge competitive sellers market and a hike.
But as this graphs show, it's unpredictable when and for how long they will last.
What is a normal market?
In San Francisco usually the sellers rule. Buyers will buy anything just to get their foot in the door or finish their search. This is usual so when the tables turn for a second that is a huge opportunity to put your money where their mouth is. What do I mean by that?
One of the most common questions I get asked is “when will the bubble burst” you know the question, you have asked me it. Well it burst 6 months ago. And what? What are you doing to do about it? Are you going to jump on it or wait for the next one in 10 years?
Historically, how long do buyers markets last?
We all understand that it is normal and the way of the real estate market, any market to go up and down. Our Compass Chief Market analyst did some amazing research on this topic. Let's go back to 1984 because after all, history teaches us the future.
1984-1990 100% increase of the market. (Great time for sellers, booming market)
1989 SF big earthquake (big event to disturb the market and peoples lives)
1991-1994 market went down 11% (opportunity for buyers to buy at low prices)
Interest rates were in the 13-10% range
1991-1999 interest rates were in the 7-8% range
2001- on until 2022 interest rates dropped. 6-3-2% range
1995-2001 dotcom boom. Market up 100%
2001-2002 a few months of the dotcom bubble bursting, market down 10%
2002-2007 boom market up 59%
2008-2011 mortgage crisis. Market down 27%. Lots of short sales and foreclosures.
2012-2020 high tech boom. Market up 88%.
This is where the article ends and my analysis begins.
This is the time I got into real estate. When the market was super hot, a true San Francisco sellers market where the listings got snatched up in days and buyers had massive competition for homes. This is the market I am used to and my clients know. 2020 changed that and we all had to adjust.
2020-2021 huge crash.
More like a total halt of the market due to the pandemic. First time I have seen banks take a pause, no mortgages were issued, people didn't know how to act. Shelter in place, we were frightened that if we saw people we would die. A little dramatic if you ask me but it happened.
A year of everybody figuring things out, all of our industries were finding a new way to do business and the real estate market came slowly back. It was a slow increase followed by a crash in 2022.
The crash of 2022 was because interest rates in 2021 were so low because the FED was incentivising people to start buying again. The economy was in shambles when COVID began. So you could buy a house with a loan of 2%! But this didn't make people run to buy houses, the people who had job security and a good savings bought houses at seriously low prices and low monthly payments because interest rates were so low.
Then started the interest rate increase to almost 7%. Then started the stock market crashes and peoples down payments were gone. Then started giant tech layoffs and the market crashed in 2022 yet again.
2022 interest rates got as high as 7-8% again
This is where we are now and what I was talking about at the beginning of this article/rant.
We are in a buyers market and I think we are at the end of it.
My predictions for 2023
Let's talk about interest rates. It's hard to predict exactly what the FED will be up to in the next few years but I predict interest rates will stay around the 5% range for a little while. People will get used to that as the new normal. And in the grand scheme of things it's really a good rate.
Read my blog article here titled “a look at interest rates. Why is everyone being so dramatic
I do not think we are going to see 2-3% interest rates anytime soon. It will stay in the 5% range.
The housing market will go from a buyers rule all market as it is now to a more competitive market. I do not think we are going to see a market like 2017 where there was a huge tech boom, crazy competition over houses but we are going to see more inventory, more buyers, and more competition.
Things will even out. So my word to people looking to get into the real estate market or buy another place. The time was 6 months ago for you and it will be ending soon so hurry.
My advice for sellers: Let's start getting ready now because come February the tide will turn in your favor.