Spring 2024 Market Update

 

Greetings readers, and welcome to a special Spring edition of the Payton & Binnings newsletter. We hope this edition finds you well. Perhaps you're just wrapping up Spring Break, opening up your pool for the season, or with your nose to the grindstone building something the world needs! In any case - we appreciate you tuning in. Now, on to the good stuff:

 

 

The real estate market is very interesting at the moment. It's an odd mixture of bright spots and pain. Max overbids and huge price reductions; hot listings and numerous canceled/withdrawns. Attention is accreting to the best properties, which serves as a good lesson. When the market is working its way out of a slump, A-plus properties retain a level of demand. Akin to the Magnificent 7 in the stock market, a select few garner most of the attention and investment. The best homes getting most of the attention is typical of an early-stage turnaround. We expect the market to broaden out as more properties take part in the recovery, but this will take time.

 

From a macroeconomic standpoint, rate cut expectations have been pushed out further than many had anticipated, largely driven by stubborn inflation prints and robust employment figures. While there is a palpable sense of renewed market optimism, rates are going from higher-for-longer to fewer-and-later, which could further stress anything sensitive to the cost of capital, including the various classes of real estate. Rent versus buy deltas are extreme, and some odd price action in Gold and bond yields raises an eyebrow given a tense geopolitical backdrop. Through all the noise, inflation and interest rates remain center stage in this environment.

 

In terms of the different sectors, commercial real estate still likely has quite a bit of pain ahead as the math on many large buildings simply does not work anymore. Couple that with hybrid work and companies getting “fit”, and all signs point to less office space being needed. As a result, we are seeing more defaults and fire sales of commercial buildings across the country. Multifamily still has some pain ahead as well, which could last for another year or three. Residential real estate, where we work, is more nimble and has shown its first signs of coming out of the trenches.

 

The first quarter of 2024 has shown both median and average sales prices in San Francisco and Marin improving. Sales volume is trending higher as well. Nowhere is this more true than sales above $5 million in San Francisco County. In the first quarter of 2023, there were only 14 sales above the $5 million mark. In the first quarter of 2024, there have been 23 sales, an increase of 64%, which is an encouraging signal.

 

In Marin, the story is similar but the numbers a little less drastic. There were 12 homes that sold in the first quarter of 2023 over $5 million, versus the first quarter of 2024, where there have been 16 sales over $5 million. That represents an increase of 33%. Any way you slice it, the high end of the market is coming back to life. Cash is king at the high end, and dry powder is getting back to work.

 

 

As we've written about in previous newsletters, equities can oftentimes front-run our local real estate markets. Given what has taken place in the tech sector, particularly large cap tech, over the last year plus, we expect to see some of that newly created wealth rotating out of tech stocks and into real estate. The reason we believe this will happen is because valuations for many companies have not only clawed their way back to November 2021 highs, they have gone on to achieve new all-time highs, punctuating one of the biggest stock market rallies in history. Those that feel the run-up in tech is nearing exhaustion may find it sensible to take profit and rotate some of it into real estate, which is still in the very early stages of a recovery. Time to catch the next elevator up.

 

For that reason, we are bullish on blue-chip residential real estate's performance in the near term, with the market broadening out in the coming 12-24 months (meaning non-blue-chip properties will begin to benefit in time). Bullish sentiment will also largely depend on the amount of supply that comes to market and what happens with rates. Selling tech shares could certainly help drive demand for real estate, but if that demand is met with an equal to or greater amount of supply, then price action could remain stalled or even go down, save for the properties people fight over.

 

This is a market where you definitely want to keep your head on a swivel and consult with experienced agents who are not only in the tactical level trenches every day, but also see the big picture (like us!)

 

If we can help you or your friends, family, or colleagues in their real estate endeavors, please reach out and we will take excellent care. As always, thank you for reading and hope your springtime is off to a great start!

 

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"Those that feel the run-up in tech is nearing exhaustion may find it sensible to take profit and rotate some of it into real estate, which is still in the very early stages of a recovery. Time to catch the next elevator up."

Since I published that a week ago...

NVDA down 14%
TSLA down 12.8%
NFLX down 11.4%
META down 6.5%
AMZN down 6.3%
AAPL down 5.3%
GOOG down 2.6%

Nailed it, to the day.

 

While I remain bullish on tech and see this as a short-term correction, shareholders and execs may be taking some chips off the table and rotating into local real estate.