March 31, 2023
Market Update + Prediction
Greetings, readers, and welcome to the latest edition of the Artemis Advisor. It’s been a wild ride here in Q1, and we’re excited to share insights as well as a forecast of what’s to come. So strap in and let’s get this show on the road, as there is a ton to cover this month!
Market Update: Remarkably Resilient
There is an awful lot of doom and gloom out there at the moment, making it hard not to get 2008 vibes. But flying in the face of it all is a surprisingly resilient real estate market with some interesting dynamics.
First and foremost— in the initial 73 days of 2023, sales volume is down about 50% compared to just two years ago— a massive decline. Volume is down because many would-be buyers and sellers are temporarily sidelined.
Why have some buyers decided to take themselves out of the game? Unaffordability. And how about sellers? Low rates, secured years ago, have created a “lock-in” effect, where people have little motivation to sell unless a life event drives them to. The lock-in stifles supply, preventing what could otherwise be price capitulation. Oh, and the rain may have played a factor in decreased volume as well. Like we said… interesting dynamics.
Sales volume comparison of past three years - Total sales of all property types in San Francisco and Marin Counties,
from January 1st through March 15th.
Macro forces are creating a market environment that is as perplexing as it is interesting. The Fed’s messaging has come unhinged from market expectations, largely kicked off by turmoil in the banking sector. The Fed insists there will be no rate cuts in 2023, but the market not only disagrees, it’s currently pricing in rate cuts by summer. Who shall win this game of chicken?
Problems in the banking system are at a crucial crossroads. The Fed acts as if these are mere speed bumps, yet we all know these could be cracks forming in the metaphorical retaining wall. The main thing we are monitoring at the moment is credit. Credit is the lifeblood of the real estate market and regional banks play a key role. If regional banks start folding (or significantly slow or stop mortgage origination), this will impede credit’s ability to flow, seizing up an already slow market. The Fed probably wants this, but to what degree is the question.
While we certainly expect credit to be more difficult during a tightening cycle, an over-tightening spells trouble. Add in a potential refinancing crisis when low-rate commercial and residential loans begin maturing and it could be a bumpy ride. Using regional bank ETFs as a proxy shows that current pain is on par with March 2020 and may have only begun. And the spread between mortgage and Treasury yields has increased, suggesting banks find mortgages to be a riskier option in managing their own portfolios. But despite all these headwinds, the market plugs along, producing opportunities for those tuned in. Bidding wars in this environment are counterintuitive but are not uncommon. The market resilience is honestly amazing.
Here at Artemis, we’ve had a busy start to the year. We just sold 441 Tamalpais, an architecturally significant Mill Valley home designed by Zack DeVito Architects, for $4,800,000. The owner approached our team after being unable to sell last year and we were able to sell it before hitting the open market. A similar story unfolded at 65 Corte Amado in Greenbrae. The homeowner contacted Artemis after an unsuccessful listing effort in 2022, and we were able to develop a reboot strategy with a fresh new look. We sold the home in just 2 weeks for $3,100,000.
Our San Francisco listings at 401 Harrison, 3319 Divisadero, and 1776 Sacramento have all either sold or gone into contract, and our Pacific Heights condo at 1840 Washington #501 is newly-available for $1,295,000. We have another Pacific Heights condo coming soon, a 7th-floor unit on Pacific Avenue with Golden Gate Bridge views, for $3.9M. Across town, we’re about to launch a gorgeous single-family home on Fulton across from Golden Gate Park— so stay tuned.
Our new listing at 99 Via Los Altos in Tiburon is now available for $7,495,000 and is across the street from the Ring Mountain trails, which are dotted with wildflowers and green grasses— a breathtaking sight this time of year. And we have a newly-available rental listing steps to downtown Mill Valley at 249 W. Blithedale for $25,000/month. This modern estate offers an unparalleled lifestyle in one of Marin’s most sought-after locations.
Monthly Prediction: Tangibles Looking Good
When inflation roars and paper assets go poof, people naturally look for other ways to protect their money. The amount of wealth that has been eviscerated by the new market environment is astronomical. Flight-to-safety trades are having their moment, which could be good for commodities, precious metals, and real estate. While real estate is less liquid than other asset types, it can act as a good inflation hedge and store of value in times like these. If and when the Fed has to print its way out of the current predicament, tangible assets can be a good store of value (not financial advice).
Do you trust your Zestimate? Good, neither do we. But regardless of how you feel about Zillow, they admittedly have decent aggregate data on trends and projections. Interestingly, Zillow had been projecting 4-6% price declines this year for the zip codes we follow in San Francisco and Marin. However, they have recently revised their projections, with many zips now forecasted to go down only 2-3%— a 50% revision. That’s interesting.
Call us biased but we’re bullish on real estate in this environment. While it ebbs and flows like any other asset class, we may have taken most of our medicine by now. But the key hurdle— and we cannot stress this enough— is what was alluded to above. Credit must continue to flow. What makes or breaks this prediction is the health of the banking system— particularly regional banks and their ability to originate loans. So all eyes are focused there for now. We are not out of the woods yet.
Click here to read the San Francisco report.
Click here to read the North Bay report.
That wraps up the March 2023 edition! We hope you found it informative. These volatile times require a sober view and a sophisticated understanding of market forces. Be sure you’ve got the best representation possible by engaging Artemis for your real estate needs. Don’t forget to share our newsletter with friends, family, and colleagues if you feel they’d benefit. Till next time!
NFA / DYOR - Not Financial Advice / Do Your Own Research
Information provided herein is for informational purposes only and is subject to change without notice. This publication does not constitute, either explicitly or implicitly, any services or financial advice by Artemis Real Estate. Information provided is not guaranteed, and Artemis does not guarantee the accuracy of any information obtained from a third party.
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