Real Estate

Real Estate Roundtable: Ever on the Rise

A Nob Hill Gazette Event

With interior design by Jay Je ers, this 2,626-square-foot Russian Hill condo — at 1080 Chestnut and listed by Gregg Lynn — o ers luxury high-rise city living for $7,950,000. | Photo courtesy of Jacob Elliot.

A panel of top Realtors takes the temperature of the market.

The much-discussed topic of real estate is always a hot one, especially in the Bay Area, where interest rates may be going up — but so is appreciation. For the Nob Hill Gazette’s third annual virtual real estate roundtable, held in March, six top agents weighed in on the state of the market today and where it may be heading over the summer and fall. Gazette co-owner Janet Reilly moderated the lively discussion, with expert takes on everything from low inventory locally to high demand for second homes. One thing is for sure: These agents are acutely aware of the cultural and geographic rewards of our region — and remain some of its strongest ambassadors.

Give us a snapshot of the state of the Bay Area residential market today.

Joel Goodrich: The San Francisco market is extraordinarily strong considering what’s going on in the world, both internationally and all the economic crosscurrents. The Pacific Heights market is one of the core luxury markets in the world. And whenever the markets go down, it’s probably the last to be hit, if at all, and the first to recover. The venture capital money that has flowed into San Francisco is really keeping our market strong. Last year, San Francisco [metro area] companies alone got $90 billion in venture capital funds. … We got more than the entire states of Texas and Florida combined.

DJ Grubb: We’re extremely busy over here in the East Bay. The biggest issue is inventory for everybody. California Association of Realtors predicted that appreciation this year would be 5 percent annually. We’re seeing north of 16 percent today. That means fewer buyers can afford, and the market is still raging.

Gregg Lynn: There is a tremendous inventory challenge of single-family homes, but not so of high-end condominiums. There are no condominiums on the market under $5 million. But once we start seeing condominiums priced above $10 million, there is historic inventory on the market that’s presenting buyer opportunities that do not exist in this single-family home marketplace.

What kind of buyers are you seeing compared to a year ago?

Gregg Lynn: COVID changed the way that we live and where we live. Some families decided to double down on San Francisco — they just needed more space. So they’re looking for larger homes, larger condos, but those are our move-up buyers. We also have buyers remaining in San Francisco, but they want to decrease their footprint and they’re moving to a smaller house or a smaller condo. But as Joel suggested, let’s not forget that if the Bay Area were a country, we would be the world’s eighth-largest economy. And as a result, we have a lot of great jobs here in tech and finance and all the other supporting industries. So we’re still seeing families moving to the Bay Area and they’re frustrated with our level of inventory, but they’re coming from great cities like New York and Chicago.

Next, we know that the mayor [London Breed] has worked hard with the CEOs of the big companies, and we’re expecting a whole other wave of people that are coming back to San Francisco that are going to be looking for housing, mostly downtown. That’s been missing for two years.

But finally — and this is where I get very excited — we are seeing the return of the pied-à-terre buyer: 60-plus, used to live in San Francisco or always wanted to live in San Francisco, empty nesters. So that’s a little bit of the same and a little bit of new, and it’s really mixing up our market.

DJ Grubb: I think the big change here today is that the luxury buyer does not feel in control of the process. A healthy checkbook does not buy a house today. That’s a very unusual dynamic in the market. So what that’s equated to is that buyers are overreaching. We had the aha moment where we heard a buyer would pay a million dollars over the asking price. That’s not an aha moment anymore. That’s a buyer who is buying future value and betting on future appreciation.

“Everyone wants to live here and they’ll pay to move here. That’s it. We have it all here. So we shouldn’t be surprised if the prices keep rising.” — Barbara Callan

In San Francisco, new listings for single-family homes are down almost 33 percent from a year ago. What are the reasons for low inventory? Do you see this changing as we head into summer and fall?

Gregg Lynn: Right now, if you own a $3.5 million house and you want to grow into a $6.5 million house, that house is not available. So your $3.5 million house that should be on the market right now is not. It’s a self-repeating process times 1,000. It’s very frustrating to us as listing agents. But this also dispels a myth that we’ve been hearing for years — that’s been perpetuated by people slamming the door, like Elon Musk and Peter Thiel, as they benefit from the Bay Area and now are leaving it to go to other places — that everybody is leaving San Francisco. If this were true, we’d be flooded with listings, but we’re not. I do believe that this is cyclical. We are having discussions right now on my team about listings that we’re going to be having in the fall that weren’t ready for the spring. And I do believe that after our summer refresh, we’re going to see a much richer inventory environment in San Francisco.

Helena Zaludova: The inventory feels especially low because we’ve had about five years of moves that were accelerated into two years of 2020 and ’21. So there was a lot of movement, and now we’re back to a more normal, balanced market, which feels and is incredibly tight. … [And] the largest generation has entered the market: the millennials. They’re finally buying homes … and boomers are not selling. They’re not downsizing. They’re buying second homes. So it’s kind of this perfect storm.

A big trend that emerged over the last two years was the popularity of second homes in destinations like Tahoe, Hawaii, Montana and closer-to-home locations like Napa and Sonoma and Carmel. Where is the demand for second homes today? PollyAnna Snyder: Well, looking at our three [Montana] markets between Livingston, Bozeman and Big Sky, the majority of the homes in Big Sky were second homes. The normal end of our ski season would be the end of March, beginning of April. Remember that’s when the pandemic hit. All of a sudden Big Sky was lit up like a Christmas tree for the months of April until the end of 2020. And a lot of those second homeowners moved to Big Sky or moved to Bozeman or moved to Livingston just to ride out the pandemic. They still have their San Francisco homes or their Northern California or Southern California homes. They haven’t left living here in the masses that we saw that moved here. It really became more of a primary residential community.

DJ Grubb: I think we’ve transitioned into a twoprimary- home marketplace. When I talk to my friends and clientele, effectively they have a home in Inverness, Carmel or Napa, but they also have maintained their home in town here. The baby boomer world created so much equity in their homes, they had the ability during COVID to move to a second home. And they unlocked their equity and they bought the second home in Bozeman, Montana, or wherever they went. So I think it’s a product of economics, the ability to move and to transition to a different lifestyle. COVID accelerated that dramatically, and I don’t think that’s ever going to change.

Barbara Callan: We have several very high-end clients looking for second homes in the City. And to Gregg’s mention of pieds-à-terre, we have people living outside the City who want their second home in the City. And we have people who are selling in the City, but they want to keep an apartment or something in the City. They don’t want to leave it completely.

With interest rates beginning to go back up, partially to counter inflation, of course, how will that affect the market?

Gregg Lynn: Well, that’s very important because if you are a buyer who has a 50, 60, 70 or 80 percent loan, with the dramatic rate increases that are happening right now, you have just lost 20 to 30 percent of your purchase power. So if you were looking at a $5 million property, you now are looking at a $3.5 to $4 million property. The cash market is not as affected, except psychologically. At some point, cash buyers are going to really learn that they lost their competition or the competition is less than it was, and they’re going to negotiate more effectively.

Helena Zaludova: It’s the urgency in the market right now to get in before the rates get out of control. It affects the lower end of the market more sharply. Even with rates in the 4 and 5 percent range, that is a big change. They’re still historically very, very low. Real estate has held its value and traded in environments that saw rates in the 8 and 10 and 16 percent range. So I don’t think we’re anywhere near that just yet.

Barbara Callan: When I started in the business, 16 percent, 18 percent was the norm. The money right now is so cheap and people are so used to rock-bottom interest rates. It goes up a little bit, they’re in a panic.

DJ Grubb: This why we have no inventory — because everybody locked in a 3 to 3.5 percent loan, whether it be a refinance or a purchase. If you’ve got 30-year financing, at 3.5 percent, you’re not moving today. That’s what’s locked up our inventory. That’s why nothing’s coming on the market. And that’s why we’re stagnant.

In San Francisco’s Eureka Valley neighborhood, Barbara Callan’s listing for a 6,000-square-foot, state-of-the-art residence with seven bedrooms, as well as a gym and wine room, recently sold for $7,100,000.

I see a lot of nodding heads … Where do you see the market going? As we see this inflation in prices continuing to rise, particularly in the Bay Area, is there a cap on how much people will pay?

Joel Goodrich: I’m extremely bullish on San Francisco and Silicon Valley for the latter part of this decade. First of all, San Francisco, compared to other international cities, is quite undervalued. Our luxury market is selling in the $3,000 to $4,000 a square foot. New York is $6,000 to $8,000. Monaco is $15,000 a square foot. Hong Kong is up to $20,000.

That’s going to be the quote of the day, that Joel Goodrich says that San Francisco real estate is undervalued.

Barbara Callan: We’re an international city. It’s the most beautiful city in the world. Everyone wants to live here and they’ll pay to move here. That’s it. We have it all here. So I wouldn’t be surprised if the prices keep rising.

This conversation has been condensed and edited for clarity.

What Does It Take To Be A Great Realtor?

Barbara Callan

Sotheby’s International Realty
(San Francisco)

“Networking and relationships with fellow brokers is extremely important. … [It] helps our clients and it makes our jobs very enjoyable.”

Joel Goodrich

Coldwell Banker Global Luxury
(San Francisco)

“One of the oldest real estate sayings in the book is, they’ll never care how much you know until they know how much you care. So you have to have a passion for your clients, for your properties.”

Dj Grubb

The Grubb Company
(East Bay)

“Always be engaged. Live a very disciplined life. I live an extremely disciplined life. And get to bed early and get up and go again. A good night’s sleep; it cures all.”

Gregg Lynn

Sotheby’s International Realty
(San Francisco)

“I think a great agent makes their clients feel like they’re the only client they have, have ever had or ever will have. When you achieve that, clients believe you and will take your advice and will refer you.”

Pollyanna Snyder

Engel & Volkers
(Bozeman, Livingston and Big Sky, Montana)

“[Clients are] getting married, they’re getting divorced, upsizing, downsizing, births, deaths, et cetera. We’re meeting them at that crossroads of high emotion and high finance. And so we have to be keen listeners.”

Helena Zaludova

(San Francisco)

“In addition to building a wonderful relationship with our clients and with other agents, I also think the ability to build great relationships with our vendors, the people who allow our process to flow so smoothly, is just as important.”

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