I’ve started to see a number of price reductions: more than in previous months, and the chatter among my fellow agents is that the market is weakening. A recent article about Square’s IPO and the valuation of other unicorns got me thinking.
Is the Market Getting Tired?
We have been in an up-cycle since 2011. This is the fourth year of robust appreciation (better than 10% a year). The up-cycle from 1994 to 2000 lasted seven years and ended with the dotcom bust. The next up leg was 2004 to 2008, which ended with the Great Recession (down three+ years). We are probably closer to the end of this up-cycle than the beginning, but no one knows how close.
While the current up-leg may be getting a bit long in the tooth, my crystal ball says that it is not headed south; probably slower growth in the year ahead rather than a continuation of the double digit growth that we have seen for these last four years.
Blessed with Multiple, Diverse Buyers
San Francisco is blessed with multiple buyer groups that sustain a long-term upward trend, which is the important consideration in my real estate book.
• Primary residence buyers who want to live and work in San Francisco,
• Pied a terre buyers who want to partake of the City’s dining, shopping, and entertainment and are not yet ready to give up the old homestead, but do want a place in the City where they can spend weekends, etc.,
• Empty-nesters who live within 100+ miles of the City, and want to enjoy the City’s vibrancy on a full time basis now that the kids are out of the house,
• Investors who understand the long-term economics of San Francisco residential real estate and want to benefit financially,
• Home collectors who want a place in San Francisco, Chicago, New York, etc.
We are indeed blessed.
Even though our residential real estate benefits from multiple buyer groups (read five legs to the stool) and sustains a vibrant market over the long-term, changing market psychology also plays a role, and contributes to mini cycles within the long term upward trend.
Square had its IPO on November 19 at an offer price of $9.00 a share, which was 50% less than its most recent private financing a year ago. I’ve read that major mutual funds, ones who have been investors in start-ups over the past decade, have started to mark down valuations of some of their private company holdings.
Question – is the bloom off high tech stocks? Is this issue contributing to changing (short-term) real estate psychology? My monthly numbers don’t indicate any drop-off in appreciation (we are up some 13.5% over last year through the end of November). Given where we are in the cycle, it would seem that an easing of the heady 10%+/year appreciation rate is coming to an end, though I know not when.
But, as I have said many times, it doesn’t matter, since it’s about the long game that makes San Francisco residential real estate attractive.