Autumn 2023 Market Update

Market Update: US10Y
 
The big story in real estate right now is the recent sharp rise in the 10-year treasury yield. This is important because the 10-year treasury yield has an outsized influence on mortgage rates, and mortgage rates directly impact home values. Over the last month, the 10-year treasury yield rose startlingly fast, briefly going above 5%. Mortgage rate increases soon followed, and as we all know, the higher mortgage rates go, the more real estate values have to come down. Some analysts are reporting that the 10-year yield (which has since retreated from the 5% level) should peak in the latter part of 2023 and into early 2024, before heading back down again.
 
Because mortgage rates rose so sharply during what is usually a very busy time of year, activity this autumn was very muted in both the San Francisco and Marin markets (see tables below). Q3 2022 wasn’t exactly anything to write home about, but it shines in comparison to activity in Q3 2023. 
 

San Francisco County - Activity Down 23%

Marin County - Activity Down 18.5%

 
In addition to interest rate moves, financial markets can also front-run real estate, so we are looking to them for setting our future expectations. The most predicted stock market crash in history never materialized this year - so we are either in a new bull market or this is the most epic bear market rally in history. If financial market trend lines continue up and to the right, we'd say that real estate is probably putting in a bottom right now and maybe into the first half of next year. That will of course be contingent upon whether or not interest / mortgage rates have indeed peaked, and if the financial markets stay healthy.
 
This has been one of the most interesting downturns to witness because, unlike past cycles, the real estate market never got flooded with inventory— at least not yet. Prices have remained quite resilient as a result. Household balance sheets were strong going into the downturn, so people had more runway than typical to weather the storm and avoid forced selling. This prevented inventory from saturating the market and propped up prices. Additionally, the lock-in effect from households having secured low interest mortgages over the past few years ensured that people had no incentive to sell unless a life event forced them to. Life events having been driving most sales and typically comes from the 5D's: Death, divorce, debt, diamonds, and diapers— and the occasional relocation. Other than that, there is not much reason to move right now and sales volume has been tracking around 60% of what it normally is. 
 
The economy (GDP, labor market, consumer spending) seems to be quite resilient at the moment. As we've written about in previous newsletters, everyone has to take their medicine during a downturn but we don’t all take it at the same time. It’s very well possible that much of the correction in tech has already been realized (which would be important for our markets) and corrections in consumer spending, the labor market, and GDP are yet to be felt. For this reason it’s entirely possible for the Bay Area to be emerging from the doldrums while much of the country just begins to feel pain. In our view, the Bay Area will regain strength over the next few years as it rides the next tech and IPO wave, which will be centered on artificial intelligence and existing companies that learn how to leverage artificial intelligence.
 
For this reason, we are very bullish on San Francisco and the Bay Area long term. Rarely is it on sale. The opportunistic pricing you are seeing right now will not last forever, so do with that information what you will.
 
Here at Christie's, we've been very busy selling our existing listings, signing new ones, and taking buyers around to tour properties. Most recently, we placed 12 Crescent Avenue in Sausalito on the pocket listing network. Thanks to our team's longstanding connections, we are able to get great exposure for listings even while they are not on the public, outward-facing market. We were able to generate an offer right away and get the home in contract. We just listed a gorgeous single family home on one of the most coveted blocks in Duboce Triangle at 74 Beaver. See our website for details.
 
Our listing at 440 Edgewood in Mill Valley is now in contract and we received 3 offers on our listing at 260 Los Cerros in Greenbrae, which is now sold. We recently represented a buyer for a condo at 2119 Scott Street in Pacific Heights— edging out 2 other competing buyers. We secured a deal for one of our buyers at 159 Bonview in Bernal Heights and just closed a buyer deal in San Rafael at 151 Rollingwood. Other recent sales include 9 Massasoit in Bernal Heights, 757 Panorama in Midtown Terrace and 776 Green Street in North Beach. 
 
Prediction: Survive till ’25!
 
Seasonal winter slowdown aside - we are generally turning less bearish and feel as though the market may be putting in a bottom. Unless inflation returns in a significant way, the rate hiking cycle is probably over. Choppiness is expected for another 6-12 months. We could be bumping along the bottom for a bit, especially if the “higher for longer” narrative plays out, but it's our view that we're closer to the end of the downturn than the beginning.
 
The phrase “Survive till ’25” has been floating around our circles and we concur. Conditions are generally improving, and opportunities can be found for those searching for them. The tides can change very quickly in times like these, so be sure to get in touch if you need a real-time update or if we can assist in any way.
 
Thanks for reading, 
 
Your Friends at The Payton + Binnings Team