There is usually a seasonal slowdown during the last quarter of the year in the San Francisco real estate market, allowing time for reflection, relaxation, and yes, market predictions. However, the last quarter of 2017 was busy! Between stressing out over the looming tax reform bill and how it will affect those of us in pricey SF, and clients who were eager to close escrow by years end or prep for an early launch in the new year, there was not much down-time. Of course, as a real estate sales professional since 2002, I count my blessings—to have clients and things going on is a good thing in sales.
Yet, I gotta write my 2018 predictions post because, well, my marketing team tells me that last year’s blog post, Predictions for the 2017 San Francisco Housing Market Forecast, was my most popular of the entire year. I guess my readers, aka friends, family, and paid subscribers enjoyed it. 😉
But first, how did I do predicting San Francisco real estate in 2017?
1. The prediction: Mortgage Rates Are Going Up. Following the election in November, mortgage rates increased almost a quarter of a percentage point. The projection for 2017 is that mortgage rates will continue to rise and could reach 4.8 percent by the end of the year.
WRONG & RIGHT. The average 30-year fixed mortgage rate is down 0.19% (3.92% to 3.73%) while the 5 Year ARM (popular in pricey SF) went up 0.29% (3.02% to 3.31%). Minor shifts on both accounts, don’t you think?
2. The prediction: An Increase in Housing Inventory. Higher interest rates typically result in an increase of housing inventory, since market conditions motivate home buyers and sellers to act.
WRONG. As noted above, interest rates stayed incredibly low and so did housing inventory. The market remained competitive for home buyers with multiple offers and overbidding the norm on most listings.
3. The prediction: Trump’s Presidency Will Affect the 2017 San Francisco Housing Market. Many are predicting that Trump’s presidency will be good for the housing market — this is his core business after all. He is unlikely to directly affect negative change to real estate and is likely to lower taxes and deregulate, which could make more credit available to potential home buyers. Of course, his economic policies could backfire and trigger a recession or high inflation and we don’t yet know how his trade and immigration policy will affect the tech sector. Keep an eye on the local economy and interest rates and always remember that real estate is for the long term.
JURY’S OUT. Yes, the stock market rallied, unemployment is low, and the global economy is growing, but that tax reform bill made me drink more of the eggnog this year, how about you? The draconian reduction of the State and Local Tax Deduction (SALT) deduction, and to a lesser extent the reduction of the mortgage interest deduction (MID), is a big ouch for San Francisco homeowners and real estate agents. Let’s hope Brad Inman is right in his 2018 prediction that “tax reform legislation, which will be signed by President Trump by the end of this year , will be amended next year and Congress will give back the homeownership bennies taken away in the original bill.”
Here are my predictions for San Francisco real estate in 2018:
1. At the continual risk of playing Chicken Little, I predict that mortgage interest rates will increase in 2018 but not enough to significantly affect home buyer demand. My guess is they’ll be up ~ 0.50%-1% by the end of 2018. Those at the fringe of affordability may bow out and wait for that ephemeral market downturn and some buyers’ expectations may need to be adjusted (as always in this town!), but demand will continue to outpace supply in the City by the Bay.
2. Listing inventory will remain tight. Even with all of the nay-saying about how “SF is over!” the fact remains that we do not have enough housing for all of the folks who desire to live here.
There are many factors that contribute to the chronic lack of housing in San Francisco: strict zoning/planning regulations, NIMBYism, desirability of living in SF, a literal lack of land, and thus, incredibly expensive housing stock.
Lack of affordability isn’t just an issue for would-be first time home buyers. It affects another crucial demographic required for a balanced real estate market: the “move up” home buyer. This is the couple or individual who purchased their “starter” house or condo a few years ago thinking they’d trade up when they built up equity and needed more space.
Everyone wants their home value to go up, right? But when the market doubles in a short time (~7-10 years), there are unexpected consequences beyond the obvious. All of a sudden, the trade up home is out of reach for many even factoring in their increased home equity for a down payment, especially when you add in the higher property taxes (and now, the majorly decreased Federal tax deductions).
With fewer folks trading up, that means fewer listings for the next gen of first time home buyer. Add in the fact that more “empty nesters” are staying put in their big homes and not downsizing, and you have a recipe for continued low inventory.
3. The bull market charges on and I predict 2018 to be another year of the “seller’s market” for most listings and neighborhoods. SF real estate is hyper-local and there has been a slowdown in downtown condo sales where there is relatively more competing inventory but even so, the attractive listings sell for incredible prices.
2018 is going to be a great year for home sellers who are realistic about their pricing and for home buyers with an iron gut (and the right real estate agent) to be competitive and think “big picture” when it comes to writing offers. As I like to say, “You need to win to move in.” This does not mean over-paying, but it does mean making your offer the one the seller accepts.
In summary, yes, it’s more expensive to live here than say, Dallas, and San Francisco remains a special place where we choose to live in the heart of culture, diversity, and technological innovation. Plus, you can literally ski, surf, pick up your CSA box, and stop off for a wine tasting all in the same day! If you can swing it, the quality of life here is unbeatable.
Other factors that will contribute to a robust 2018 in San Francisco real estate:
- Potential local IPOs (AirBnB, Dropbox, Plantir, Pinterest, Spotify, Uber…even the threat of them causes our market to react, agents talk about these IPOs a lot, which I find funny but that’s another story.)
- Low-ish interest rates
- And continued global economic expansion which is good for our biggest employer, tech
BONUS: Color Trends in 2018
HouseBeautiful has this to say (which I include here, verbatim):
“Move over Millennial Pink: Lavender is going to be the ‘it’ color in 2018!”
Designer Nancy Fire tells how pink has deepened and subdued into the more reserved lavender and lilac. She also welcomes the return of warmer reds and corals, and even yellow. She notes how the push for neutrals went too cold in recent years.
Joanna Gaines, on the other hand, counters the recent trend towards a modern white with splashes of high-contrast accents, especially a “timeless” natural green, but Doug Wilson prefers a golden brass (think taps and faucets) noting that last-season’s favorite, brushed silver, has become too pedestrian and expected.
Also pedestrian and expected, the humble accent wall. Now twenty years out of date, it’s preferred that furnishings and art pieces do the heavy lifting when it comes to interior design, and the walls form a more consistent backdrop.
Echoing Gaines’ call for “natural” green, Shawn Henderson and Sabrina Soto are expecting a comeback of “cozy” olive greens against rough-hewn natural stonework.
This fits an overall design trend for artisan fixtures, a demure kind of hunting-lodge chic, and unfinished woods and stone, balanced by ironwork and heavy brass fittings.
2018’s sleeper-hit design trend? Warm, deep jewel tones, especially ruby, violet, and burgundy.
In 2017, Danielle Lazier + Associates sold almost $115,000,000 in SF Bay Area residential real estate. We specialize in listing marketing and home buyer representation. We work with a diverse clientele in terms of budget, property type and location, but one thing remains consistent: our clients have a clear goal to maximize their San Francisco real estate investment and want us to help them because we deliver both results and an enjoyable experience.
Are you buying or selling a home in San Francisco? Reach out to us for a consultation!