COVID has caused a shift in buyer preferences. This has driven pricing up for some product types and in some markets, creating buying opportunities for the speculative investor.
The single family home (SFH) market has been incredibly strong. With so many families spending extended periods of time at home, we saw our clients pushing for extra space. Our buyers have been looking for extra bedrooms and/or dedicated office spaces with a door for privacy. In the past, similar buyers might say an extra bedroom would be nice to have. In our conversations, the want has become a need. In the past, an office nook or built in office space was considered great. Now, with people working from home, we have had conversations about the need for a fully dedicated work space, sometimes with sound insulation. Outdoor space has also been in high demand. Kids have been cooped up and in need of a place to safely get out their energy. People want the option to be social and safe, so the ability to host outdoor activities has grown in importance for buyers.
We’ve witnessed the start of a shift in location preferences. Many of our clients have been moving away from city centers to the suburbs. Not only are they seeking more space, but there is less need to live close to the office when so many companies have changed their policies about working remotely. Families are now considering settling into areas normally thought of as second home markets, like Pebble Beach, Santa Rosa, or Tahoe. Locations like these still make it possible to pop into the office somewhat regularly but offer buyers space and welcoming surroundings.
With this shift by product type and location, it opens opportunities. For example, the condo market in San Francisco has been soft. The sellers of these properties have been the buyers of SFHs in the suburbs, so there is a supply and demand imbalance that is causing San Francisco condos to return to the values seen over five years ago. Here’s a specific example. 2002 3rd Street #213 in San Francisco just closed for $1.05mn in December 2021. In January 2016, 2002 3rd Street #212 in San Francisco sold for $1.1mn. The unit that just sold is arguably better, with peek-a-boo views of the water and more contemporary finishes.
Our hypothesis is that markets like Pebble Beach, Aptos, Sonoma, Santa Rosa, and Livermore will continue to strengthen. People will realize that the dollar stretches further in those markets. Perhaps early mover friends will convince others to join them. Our bets are that those outlying markets will continue to see favorable growth on a cost-per-square-foot basis. Over time, those buyers will realize that they want or need to commute into city centers and workplaces somewhat regularly. So many of us recognize the value of in-person interactions. We think the demand for pied-a-terres in San Francisco and Silicon Valley will rise. Some of these commuters may rent crash pads to give themselves a regular place to stay, while others may buy. Either way, we believe the condo market in San Francisco will rebound, but it will take time for people to feel the pain of those long drives.
Members of our team are capitalizing on our beliefs. We’re buying or developing homes in outlying markets. We’re also investing in pied-a-terre-type properties. Hopefully, our predictions will come true.
Agree with our hypotheses? Have different ideas you want to bounce off of us? We’re all ears. We live and breathe real estate and are passionate about understanding consumer behavior. Let’s set up a time to talk. We’d be happy to partner with you to help you realize your real estate goals.
We recently shared some of these ideas and more during a live presentation. Join us in 2022 as we roll out a regular series of speaking events. Stay tuned here, on facebook, and on eventbrite for details.
Someone recently asked for data of my sold price vs. list price for the past year. This was an awesome opportunity to consider the topic of whether this should matter. I LOVE data. After all, I was a strategy consultant and Wall Street analyst. I earned a living parsing through data, then applying my understanding to predict the future. But not all data is created equal.
Let me highlight two examples for consideration. A few years ago, a single family home in Palo Alto was not selling. The listing agent reduced the list price to just under $1mn, which was far below the market value. An acquaintance thought she could buy the house for the list price. I had to break the news that the house would sell for over $2mn, as it should, and that the list price was a “marketing stunt” to grab attention. Did the listing agent outperform by listing the house for less than half of its market value? If an agent touts their ability to achieve a significant premium above the list price, I would question whether the agent really has their pulse on the market or whether the agent sets artificially low prices to bolster that particular data point to prospective sellers.
A second example points to the wonderfully human element of selling real estate, which is a core reason why I love my career. My sellers received numerous offers and chose one offer that left about $20k on the table. Why? Because the buyers’ story really resonated. They were a young family with a newborn. We learned that the mom was battling cancer, and the family wanted a peaceful home where the mom could comfortably get through her recovery. The sellers had lost their father to cancer and were immediately taken by this family’s story. In this case, the sellers were thrilled that they could bring joy to the buyers, even if they did not maximize the price of the home they were selling.
While I love data, what I value above all else is doing the right thing, in partnership with my clients. You determine what is most important to you, and we will be “Here to Protect Your Interests.”
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