San Francisco Real Estate Market Update Q2 2023

SAN FRANCISCO MARKET UPDATE & OUTLOOK

UPDATED 16-July, 2023

Q2 DATA SUGGESTS REAL ESTATE RECOVERY UNDERWAY

● Macroeconomic fundamentals steadily improving

○ 0.25% rate hike expected 25-July from Fed

○ Inﬂation is coming way down

○ Unemployment is under control and the stock market is performing fairly well

● Real Estate prices seem to have hit the bottom and are swinging back upwards

○ Both SFRs and Condos saw strong gains in Q2 across all of our markets

○ Low inventory and high demand is creating competitive offer situations again

● The market is getting “unstuck”

○ Most sellers have 2-3% interest rates, buying at 6%+ is a hard pill to swallow

○ When rates come down, we’ll see a surge in activity - possibly EOY but likely 2024

○ 5%s are more ‘normal’ rates. 2-3% not likely to happen soon.

SAN FRANCISCO UNEMPLOYMENT RATE IS SLOWLY INCREASING

Despite an increase over last month, SF is below the national average of 3.7%

Source: https://ycharts.com/indicators/san_francisco_ca_unemployment_rate

STOCK MARKET IS GAINING GROUND

As of 5a 21-July, 2023

Source: https://www.marketwatch.com/investing/index/djia

DJIAis at a 52 week high

INFLATION IS DOWN - WAY DOWN. HOORAY!

Inflation is the #1 data point to watch to forecast reduction in interest rates

SOURCE: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm

June’sYOY Inflation rate was 3% The Fed’s target is 2%

INFLATION LOOKING FORWARD

We are here.

Source: https://www.morningstar.com/economy/why-we-expect-inﬂation-fall-2023-2

WE’RE READY FOR LOWER RATES

Encouraging inflation report pushed rates down a bit

SOURCE: https://www.freddiemac.com/pmms

MORTGAGE RATE FORECASTS

● NAR: Mortgage rates will drop to 6% by end 2023 and average 5.6% in 2024

● Mortgage Bankers Assoc: Rates will average 5.6% by end of 2023

○ 25% increase in purchase mortgages in 2024

● Bank of America: Rates to 5.25% by end of 2023

● Fannie Mae: 5.7% by end of 2023 and 5.2% by end of 2024

● Freddie Mac Chief Economist: rates should “gently decline” towards the end of 2023

● Redﬁn: “In every scenario, rates are going to come back down,” she says. “It’s just a matter of when.”

● First American: 83% of homeowners currently have rates below 5%

Sources:https://nationalmortgageprofessional.com/news/mba-mortgage-rates-fall-spread-shrinks#:~:text=',-NAREE%20via%20Twitter&text=Economists%20tell%20real%20estate%20editors,to%20average%205.6%25%20in%202024 https://www.forbes.com/advisor/mortgages/mortgage-interest-rates-forecast/ https://www.thetruthaboutmortgage.com/fannie-mae-is-predicting-much-lower-mortgage-rates-by-year-end/

INTEREST RATES AND THEIR EFFECT ON MONTHLY PAYMENTS

Lower monthly payments will enable more buyers to enter the market

Today End 2023 End 2024 Purchase Price Today $1,500,000 $1,500,000 $1,500,000 Down Payment % 20% 20% 20% Down Payment $ $300,000 $300,000 $300,000 Loan Amount $1,200,000 $1,200,000 $1,200,000 Interest Rate 6.70% 5.98% 5.20% Monthly Payment -$7,743 -$7,179 -$6,589 Change from Today -$564 -$1,154 Mortgage Amt for Today's Same Pmt $1,294,298 $1,410,159 Same Down Payment $300,000 $300,000 New Sale Price - Today’s Pmt $1,594,298 $1,710,159 Gain 6% 14% This is appreciation

REDFIN’S CHIEF ECONOMIST, DARYL FAIRWEATHER

When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, says Daryl Fairweather, chief economist at Redﬁn. “It’s still that affordability problem. That’s going to stay with us.