Summer 2023 Real Estate Market Report

September 1, 2023

Market Update + Prediction

Welcome, readers, to this special end-of-summer edition of the Artemis Advisor! Hopefully it was worth the wait because this issue is packed with more research, links, and sources than anything we've put out to date. There is a lot to catch up on, so let's dive right in.

Market Update: The Big Thaw

As the end of summer approaches, we are happy to report that San Francisco is showing signs of a resurgence driven by a confluence of factors that are as diverse as the city itself. It’s early innings, but for those in the know, it could signal a great opportunity.

The AI boom is at the forefront of this transformation. Startups are flocking to the city, sensing a new gold rush, and the numbers are compelling. Office searches are reaching levels not seen in years, with AI companies accounting for a quarter of them. San Francisco is now home to 20 of the 50 members of Forbes AI 50 list, and AI companies have tripled their footprint since 2016. The city's financial district and South of Market areas-- beaten down over the last few years-- are showing signs of life, and smaller AI startups are finding homes in areas like Hayes Valley. And yesterday, AI company Anthropic apparently signed a 230,000 square foot lease in the old Slack headquarters. All positive news.

But the allure of San Francisco extends beyond the AI boom. Data from Zillow reveals robust interest in the city's properties, not just from locals but from other major California cities. The allure of San Francisco real estate living continues to captivate potential buyers, and regular "we regret moving to Texas" articles are softening the negative narrative we've been pounded with the past few years.

San Francisco is rarely on sale, and the current market presents a unique window of opportunity for those willing to get in early on the resurgence. With the Fed signaling that the hiking cycle is nearing its end, the market is sensing stability and seasoning to its new environment. The opportunity could be short-lived.

Seth Rubin, Head of U.S. Equity Capital Markets at Stifel, predicts a recovery in the IPO market by mid-2024. The market won't open up quickly-- it will gradually build momentum through a handful of successful IPOs-- which will pave the way toward the IPO market's thaw. This trend will greatly affect San Francisco/Marin, Silicon Valley, and NYC real estate. Coupled with big tech leading the NASDAQ in 2023, these are all positive signs for our region.

Aside from all the information we analyze-- whether it's numbers or news-- one of the biggest data points we saw over the summer happened while driving across the Golden Gate Bridge. Plastered across the side of one of the big London-style double-decker tour buses was a big sign saying "Drivers wanted - Now hiring - CDL required." This, to us, was (although anecdotal) a signal that San Francisco is indeed bouncing back. It's hard to think of businesses that took it harder on the chin during this downturn than tourism-based businesses in San Francisco. But to see that some of them are hiring again, and that tourist activity is picking up, is a beacon of light that cannot be ignored!

Here at Artemis, the workload has spiked in recent months in stark contrast to the paltry activity we experienced in the second half of 2022 and first half of 2023. There is a real palpable sense, not just within our own organization but when comparing notes with our colleagues, that activity has significantly picked up and the worst could be behind us. Some big threats still loom (see Arrian's SF Standard Interview transcript), but for now, things are on a nice upswing.

We've been very active on our blog recently. There is a lot going on and far too much to cover in an email-based newsletter. If you are interested in learning more, here are links to recent pieces that were written, covering everything from a two-week MLS outage due to a ransomware attack to the full transcript of a recent interview by the San Francisco Standard for THIS article that was just published a few days ago. If you are at all interested in trends affecting San Francisco and Marin Counties, the transcript is a deep dive into what is currently happening. Refresh our blog page periodically for more bits and pieces between newsletters.

Prediction: Do You Lift, Bro?

This edition's prediction connects the unlikely duo of barbells and real estate. There's an emerging trend that could last a selling season or two, and it concerns the source of funds used to purchase real estate.

We often hear questions about whether cash deals are more prevalent in the current market, and the answer is a resounding yes. With interest rates at a 22-year high and affordability at a 40+ year low, financing is not exactly an attractive option right now. However, we're noticing a surge in 20% down buyers as we review offers on our listings. For those that don't know, 20% down is the minimum one can put down on a house. So what we're seeing is a barbell market -- cash buyers on one side and 20% down on the other. But why?

The reason behind this trend is simple when you think about it. In a hot market, sellers with multiple offers on the table are usually quick to dismiss folks putting 20% down. There is just too much risk. What if the home doesn't appraise? Can they make up the difference? What if the buyer's rate changes? Will they still be able to close? Having buyers come in at 20% down, sad as it is to say, is not preferred when you're a seller.

But, given today's scarcity of buyers, sellers are more willing to consider anyone who comes forward. As a result, this environment presents a great opportunity for 20% down buyers who might have been previously overlooked. If you're a 20%-down buyer, now is your moment to get in, assuming you can stomach the payments for a while. In our SF Standard Interview transcript, you'll find information about the Fed's plans, statements from Chair Powell, and potential rate cuts coming in the future if you'd like to learn more.

Overall, we find this trend interesting and will continue monitoring it closely.

Final Word: Thank You

Finally, we'd like to conclude this edition with a huge thank you to our clients, friends, and colleagues. Our team was once again selected as one of the top-performing teams in the entire Bay Area as per the Leading 100 list. You can read more about it HERE. It's a testament to the trust you place in us as your advisors, service providers, and negotiators. We cannot thank you enough.

Click here to read the San Francisco report.

Click here to read the North Bay report.

That's a wrap, see you soon!

-Your Friends at Artemis

Disclaimer

_{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.}