SPEAKER_01 0:00

Okay, guys, we are here today to talk about the crazy San Francisco real estate market with 90% of homes selling over asking price. What is going on? What is causing these things? Peter, what do you think is happening in California to cause these things to happen?

SPEAKER_00 0:18

I think, first of all, it's very interesting because the rest of the uh the rest of the national market is not as hot, right? And then even the rest of California is not as hot. It's just for some reason the San Francisco market uh is like extremely hot. We're talking double-digit appreciation, right? And we're talking, you know, homes that are clearly it'll be it'll be difficult to get a home that's a million or less, right?

SPEAKER_01 0:43

And so if I can quickly share on that topic, yeah. So think about what the median housing price is in San Francisco. It's 2.15 million.

SPEAKER_00 0:56

That's crazy.

SPEAKER_01 0:57

Median.

SPEAKER_00 0:58

I didn't even know that.

SPEAKER_01 0:59

18% year over year. Um condos. Hey, I'll just get a condo, it's cheaper. The median price is $1.36 million, 27% uh over year over year. Uh 80 right average is 500K above the asking price, and uh inventory is about 33% down year over year, so it's shrinking quite quickly. So, yeah, please continue.

SPEAKER_00 1:28

Yeah, you know, it it seems like there is a lack of inventory um because there are restrictions on building, which has always been kind of a problem. Um, but then on top of that, there's an AI tech boom uh that you you know, we're investing so much money into AI. And so uh, you know, everyone knows that a lot of these low-level developers are getting fired, but they're needing more AI developers. They're needing more people into AI, and there's billions and billions of dollars going into AI, and so they are hiring more AI people, which a lot of them are um they're they're gathered in SF, right? In you know, that that area. And so a lot of great jobs, and this is causing the market to go crazy. I didn't realize that prices were over two million, like that's the average pricing, which means that you'll have to be at like three to four, you know, for a decent home, I'm sure.

SPEAKER_01 2:25

What are the payments at two million dollars with 20 percentile?

SPEAKER_00 2:29

I mean, you'll be at like you know, close to 10, 10, 11 uh a month at 20. Yeah, I think more. Um, with these interest rates, too, they're not down at three percent anymore. So so that's kind of the interesting thing because the interest rates are supposed to affect the market, which the rest of the country is affecting the market, but then because um we have such high demand and low inventory, regardless of what happens to the uh interest rates, well, I wouldn't say regardless, but um if there is a low amount of inventory in a particular area, uh people are gonna buy. And the the thing is it can go up so fast, like we're talking 18%. Like that is an insane number, right? 18%. That means if you bought a home at 3 million, for example, 18% of three million, that would that would be one of the best investments that you've ever made anywhere within one year. That's how crazy it is right now. So um, it's definitely uh uh you know very shocking. And um I I guess the question we want to go into is okay, then you know, is this then a indication of where our market can go, even in Seattle and other, you know, uh markets that have very heavy tech industries, right? And so that's kind of the question. That's actually what's on my mind where I'm thinking, okay, you know, we're seeing multiple offer, I mean, it could switch up so fast, right? Because you know the how the psychology of bidding wars is insane because as soon as someone else wants it, or three other people want it, you start getting into this crazy bidding more situation, and people are bidding literally like 10% above asking price, 20% above asking price, right there. So in a particular area, we're talking like a double-digit appreciation in you know a month because of the that that kind of psychology of uh multiple offers. So that's what's on my mind.

SPEAKER_01 4:41

So I'll share a little bit more about San Francisco that I think will help tie this in all together. Uh, so AI companies uh lease over 13% of San Francisco's office space. If we remember back to COVID, uh the shutdowns, you know, whether you agreed with it or not, many people didn't, the office space sector just died. You know, there are there were a record number of vacancies. I remember seeing over 30% of office space. I mean, think about the millions and millions and millions of office space that just got vacated uh practically overnight. Um, now, because of the nature, so we we covered this a little bit with Colin Wong, uh, who was a guest on our previous podcast. The nature of the AI boom is that you don't need a hundred percent corporate office to make something viable. You vibecoded an app, a budget app, among many others. You know, we're playing, we're we're we're iterating, uh, we've actually started to automate some of our you know workflow in our own business with AI. But because the nature of the AI boom requires less people, maybe even a one-person team, that I believe is causing those smaller spaces to slowly fill up. And AI companies, again, lease over 13%, over a tenth of all of the office space, leading to a 70% increase, 70% increase in quarterly office demand with startups rapidly filling vacancies. I think that's a huge fact to remember because that will tie into how I think the market's going to change in Seattle. So if I'm making those connections, I'm basically thinking, okay, there is a big office vacancy here as well. But once uh once those start getting filled with regular people or people who are laid off, right? Who are just kind of sitting on the sidelines, they have a bunch of RSUs or stocks or whatever they they still have some money. And then maybe a bunch of them go into another industry. Or I have people who are looking into opening up secondary businesses, right? Daycares or whatever. Um uh pickleball courts. I've to I've heard that before. But then a lot of them, I think, will go into the uh AI, maybe startup space, like the friends we know. And I think that's gonna start to cause another churn in the in the market. So, yeah.

SPEAKER_00 7:11

Well, I see that's the thing. Like if you look at the greater Seattle, I do believe we're seeing a lot of these low-level engineers be uh, you know, lose their jobs, unfortunately, right? But we're also seeing a lot of so there's this like doom and gloom in the uh housing market, there's this doom and gloom in the job market, and it's true, a lot of people are being laid off. You hear about all these stories, Microsoft like trying to lay off 10% of their workforce, you know, et cetera, et cetera. The SaaS companies, Salesforce, um, you know, Paramount, and uh you name it. It it goes on and on. And yet the other side of that story is that AI is still, they are actually making jobs. And so that's what a lot of these AI, uh pro AI people, you know, these these heads of companies are saying is that it's actually gonna create a lot of jobs. So you're gonna see a lot of job losses and a lot of replacement, but you're also gonna see a lot of job creation. And that may come from the small businesses. People are, you know, starting up their own business and uh using AI to have basically small teams like our friend Colin, who's you know, he's got obsidian where where he's making this company with a very small team, but he's able to create such impact, right? We also have this other dynamic of RTO, right? So a lot of companies are now required, AI companies are actually requiring their employees to come back into work, to actually be in the workspace. Exactly. Thus, that is going to then increase the demand for the particular areas because Seattle traffic sucks. Same, I mean, everyone knows about California traffic, so they want to live close to these companies, they have to live close, they can't just live two hours away, or else it's gonna be a I mean, and and honestly, two hours away in San Francisco is still pretty close, and so that's probably what's driving a lot of these, you know, p, you know, a lot of this uh multiple offer situations. So, can we see this replication in the greater Seattle? And I feel like we can. I feel like we're in a transition period and we've kind of been scared that the market was gonna crash and this and that, but I do believe a lot of job creation is happening, and we do have Microsoft, right? Uh, we have Meta, right? We have Google. I mean, a lot of companies that are very heavily investing into AI uh with a lot of money. And so I I and we have inventory problems, we're not building homes. The same problems that California is having, where there's you know restrictions on building and permits, and it's just you know, that's a chaotic. But then there's also the the cost of building and borrowing money is so high that people are not building, so that's why we in the greater Seattle still have to uh like two to three months of inventory, which is still low, right? So we can talk about you know, kind of the the market here, but what what are your thoughts?

SPEAKER_01 10:12

Yeah, I mean, just to cap off the San Francisco story, um, you know, we have a lot of referral partners uh all across the US. You know, we've personally bought and sold within six or seven different states, and we have a network where, for example, in Walnut Creek or in the Bay Area in San Francisco, I just gave a referral to a super loyal client. Her son became a pilot. So, really, you know, uh good news for them. He's establishing his roots, has a family, and they're searching, and they just got under contract. So I said, Hey Vincent, what's going on in your market? Let's just kind of compare notes. And he's like, Oh, yeah, I just put up a listing and we got four offers. And I'm like, huh. Uh, we put up another listing, you know, uh a couple of weeks ago. We got eight offers, 150k over asking. And I'm and I'm I'm just like, and I and he has and he's not done. So he's he keeps saying stuff like, Well, there's another two million dollar condo, or uh, I can't remember if it was a condo or uh single family home, but there was a property that this guy listed for 2 million that he tried to offer on, and it sold for 4 million, two to four million, which correlates with the stories that you're you know that you put or the or the facts that you put. Um, I think you put nine homes sold. It was probably one of these homes, nine homes in San Francisco in in the first quarter over to bid by two million or more.

SPEAKER_00 11:42

Two million. That two million. We're not talking about the price of the home, we're talking about how much they bid over asking. So if it's a two million dollar home, it went for four, it literally went for double. That that is crazy.

SPEAKER_01 11:57

So think about how that works, right? A lender isn't gonna give you two million dollars additional just because you asked for it. It's cash. You have to pull that cash out of somewhere, and that just shows that people have cash that's waiting on the sidelines, that's ready to deploy. And then a moment's notice, because they buy into the future of the market, boom, they're just putting it in. Nine homes over two million overbid. Um, so when I hear these stories, it's very reminiscent of what we went through back in COVID. And it was actually worse. I mean, we've gone up against 20, 30 offers. Oh, most homes were getting 10 plus. We had to have all of these conversations. You know, the joke around the office was when you make an offer, there's no contingencies, you just take, you know, a suitcase full of cash, you waive everything, and you give the sellers everything. You literally waive all your legal rights, you give up your earnest money. Now, do I think that's gonna happen here? I don't know, and I don't think so. But I think there is a massive opportunity where what I'm seeing in the market here today is that definitely there's more inventory. Definitely there is more tibidness in the market, there is more room and willingness to negotiate. So, about a year ago, what we saw was that prices were down, but sellers were not willing to let go of that reality from a couple of years ago. It was very hard to get even a $10,000 to $20,000 discount. You just recently negotiated a $125,000 discount. I'm looking at a $50,000 discount off of one of these listings that we're actually uh may make an offer on today or tomorrow. And the sellers are more willing to move with the times because they're getting hit with their, you know, life, they have to move on with their lives. That sale that I mentioned is actually because of a return to office. And, you know, because they work on the east side and they bought this nice home, they overbought this nice home in Linwood, now they don't want to commute two hours a day. So I believe that there is going to be a resurgence. I believe that when some of these hit trends hit this market here, and maybe with cup maybe coupled with lowering of the interest rates, I think the market's gonna come back. But what are your thoughts on the market here?

SPEAKER_00 14:24

Yeah, let's let's talk about it. So here's what's actually happening. I I've been watching the market. I I seriously, I've been watching it so uh often because I want to know what's actually going on. And what you're seeing is prices are going up. Prices are actually going up until the March data, uh, as of March, uh, and the April data should be coming very soon here. And and I've actually been waiting for that until I did a market update for all of our all of our clients. Uh, prices are actually still going up. Despite the AI scare, right? The job loss scare, despite the higher rates when it went from 5.99 to 6.5, like this, you know, with what the Fed chair um has said, and you know, with the with the active war, uh prices are still going up. So the thing we are seeing though, a lot, at least uh amongst our, you know, just our experience and actually agents' experience. I I I just talked to a few different agents this uh past couple of weeks, and they're just asking me, hey, like what's going on with your listings? And they're like, Oh, yeah, my listing's sitting. But the listing's really good. The home is really good. It's Kirkland. Like, why is my listing sitting? Right. I just did two price reductions and it's still sitting. And people are people just uh put their house up for like 150,000 less than mine, and it's comparable to mine, right? And so that's actually the the headline for a lot of people, for a lot of agents, um, where homes are sitting, King County, 47 days median uh listing time. Snohomish County, it's faster overall, it's 24 to 37 days. Um, and then of course, luxury is taking, you know, obviously a little bit longer. But we're seeing we right now have roughly around uh 2.78 months of inventory. Last year we had 2.15 months of inventory, so we've definitely increased. Uh, and then the year in 2024, 1.57 in 2023 1.38 in 2022, when it was just absolutely chaotic and we just had nothing to choose from. That's where we saw um, you know, the multiple offers. We were putting three to five hundred thousand above asking price just to be able to have a chance to win it. And back then there was less than a month of inventory. So uh the statistics here say 0.58 months of inventory. We're at 2.78. And in Selmish County uh and King County, we're right around like that two to three mark, like almost three months of inventory mark. Still better than you know the the balanced market, which is you know, like four to six months of inventory. But um, yeah, we definitely have more. And so we're actually seeing we're right around a 1.5% um year over year uh deep, like we we actually decreased in price year over year. And I don't know what April because usually a lot of the price increase happens in the beginning of the year until about May, and then prices actually start to go down a little bit because you know people are done buying homes, they're now in summer vacation mode. And so I would be very interested in what April's gonna show. Uh, because we're seeing particular things, we're seeing a trend go a certain way, but only data will tell. And uh it would be very telling of where the market's gonna go, whether we're gonna actually, you know, from January to uh December, if we're actually gonna go down in prices or not.

SPEAKER_01 17:55

Uh so something that I think about is you know, how do sellers and buyers win in this market? You know, the thing is the advice for sellers, in my opinion, and from my experience, is be very specific and knowledgeable about your hyperlocal market. Know your zip code, know your neighborhood. Know that crossing over from one city to the other can make a dramatic difference. You know, we just ran comps. So what we do is we send out detailed reports every every uh every week on Tuesdays, and we tell the seller, hey, this is what's going on with your listing. This is you know the statistics, these are the numbers, these are the metrics. And if you cross over from one zip code, which could literally be a street over, your inventory can change a whole month or even two months. I've seen inventory change from one city to the next, from two to four months, just because of the zip code, which could be uh mainly the school, the school district, mainly uh the the future improvements that that city is promising. Uh, for example, in Snohomish County, Linwood is kind of the hot ticket still right now. And if you know those numbers and metrics, you know where to fit in. And if you are priced well, things will still sell. I just saw a property sell the first day it came onto the market because the builder that released that inventory was very realistic about the about the price. And when we see price reductions, it doesn't make sense to most people, but because a lot of these guys are watching these uh listings like a hawk, when you do a big enough price reduction, you can actually get a bidding war and bid that price back up. I've seen that too. And not a bidding war in the sense that it's gonna go up a hundred K. It's more like maybe you drop it down to below list price and you go back up to list price, maybe with wave contingencies. And I think personally, for uh on the buyer side, the interest rate, the payments are the biggest challenge. I mean, let's face it, having to pay what you used to pay for a million dollar payment at 20% down for a $600,000 home is not easy to deal with. However, rents are going up too. I I just saw a townhome um on the east side that's not that big. I think it was like 1,700 square feet, rent off for $4,000 a month. And that's just a townhome. So you look at these relative differences and you look at okay, do you buy into the idea that we are going to come back? Do you understand that our inventory is still relatively low because four to six months is a balanced market and we're at two and a half, like you mentioned? And the last thing is just like San Francisco, uh, New York, New York City, Hawaii. I mean, we are land and build constrained. There's not a vast expanse of land we can just go into to build. Municipalities and cities are very tough to deal with in Washington. It's very expensive to build, like you said. So we're always going to be supply constrained, and I think that means that it's always going to be a relatively hot market. So will it come back? I mean, we don't have a crystal ball, just like San Francisco, but I do believe that we are in a pocket, in a lull. And if you're a buyer, I think it's a great opportunity.

SPEAKER_00 21:25

I think one thing we have to mention though, um, and you briefly mentioned it, is the mortgage rates, like where are mortgage rates gonna go. Um, because like you said, we're always gonna have a constraint of supply, at least in the foreseeable fruit future, because we can actually see we have data on housing starts, right? Like how many permits, and we could see that, right? And we're not seeing enough inventory here in Washington, right? And so uh, okay, then maybe we are gonna get people a bunch of foreclosures, right? People just can't make their payments. We're not there either, because a lot of people say. have a lot of equity and they're they're they actually have still a lot of the the a lot of money in RSU's uh where they don't have to actually sell so we're not seeing any of that we're not seeing a bunch of uh you know uh more uh backlogged mortgage payments because we have that data so constrained supply one of the two the two biggest factors that will affect demand which will affect the prices ultimately is mortgage rates and the job market right and so if and then of course consumer confidence okay so let's talk about consumer confidence if the war in Iran goes away if it actually does end then I believe that you know that consumer confidence will uh bolster right number two is AI like we said before like we're seeing a massive uptick of AI employees in california in in San Francisco right now we are actually seeing job creation happening are we going to see the same thing here in Seattle and I've I I I venture to say that we very well may because I believe that there's so much talent out here that a lot of people are going to want to um move out here and a lot of jobs are going to be created I believe that's gonna be a the the jobs being created is also going to be affected by the federal uh the the federal government and their decision to lower the rates right so if we lower rates which as everyone knows uh Powell just had his last meeting so uh he is stepping down in May and then Warsh is gonna be sworn in or whatever you call it in June and this is supposedly the guy that you know Trump wants so they can drastically lower rates and so if if we do actually have lowering of rates which I don't think is the best idea because you know of oil prices because that's going to really affect our inflation in a negative way but but then again the war may end right so we might see this all kind of come through where oil prices go down. Okay, let's now finally lower the rates. Now companies are starting to hire again and then the bond market goes down the mortgage rates may start going down so if we see mortgage rates go down we see AI start to hire more out in our area we obviously and then the war ends which you know affects people's demand. So you're seeing demand significantly start going up and then you're seeing still that constrained supply which is only going to worsen the supply because there now you have more demand people buying and then supply is even getting more constrained.

SPEAKER_01 24:43

Now we're going into the twos and the ones in terms of the months of supply well then we could potentially we're not going to see California where we're seeing 2 million above asking but we may see not a 2022 but maybe a 2023 maybe some like a mini version where we're now seeing people put in a hundred thousand three hundred thousand above asking price again so that's just my thoughts I I the the possibility of that happening is very real it is very very real and it's very possible so if you go back to 2001 and what we saw on the run up to you know 2007 eight we had a war going on and we still had a bubble and yes that bubble popped but this is not the same thing that was a completely different scenario we've talked about it it was crazy lending practices and Wall Street shenanigans what I what I personally think is that the war is just a necessary war for the energy landscape in the world there is a lot of talk about how oil is basically running the world I mean we have I've I've just read of reports where uh the the ships that were blocked going through the Strait of Hormuz are now rerouting to the US Louisiana Texas we have a property in Houston like right next to the refineries so this war however you think of it the way the more I research and look into it is a necessary one to to shift the balance in power and I but I don't think that's going to necessarily crash the economy because we may actually come out on top as the producers because we already are self-sufficient. We already produce enough oil like if we were just cut off we'd be fine that's kind of how we became a superpower right we have coastal we have coast and coast and we have land and land and we have enough resources to to protect it we have enough um um uh internal you know oil and gas production to just survive but I think this is not going in my opinion I don't think the war is going to end anytime soon but I don't think that's going to prevent an AI bubble that's already happening in San Francisco and like you said I think it's very real the chance of it happening again here because we have been a mini San Francisco right we have the infrastructure we have the the companies that have already rooted here I mean sure there's some headwind with the whole millionaire tax and that's a whole nother episode I'm sure but there's so much massive tailwind on the AI side of things and the the the the pent of frustration from the people who got let go who are saying you know what screw this I'm gonna do my own thing you know look at our you know Colin or our friend Rishi or or whoever I have a lot of friends I have a lot of friends who started companies. Yeah and that's gonna I think continue. I think entrepreneurial the entrepreneur spirit is usually snuffed out by the realities of being an entrepreneur it is a lot of work to become an entrepreneur. There's no safety net you don't you don't get to call HR and complain about your coworker right um but all that is becoming easier we we're able to create more value there's going to be more you know local value I think because you know we all have local needs and I I'm hopeful in the long run I think the worst case in my opinion is a little bit of stagflation where we have this high inflation it sucks but it's almost necessary in this changing of the guards in in the world uh order um and you know maybe we'll just stay I mean one the average appreciation over a hundred years in real estate is about four and a half percent going back that's normal so now we're kind of tickling that you know that normalcy and we're like this is weird because we're not used to being normal in this market for the last 10 years. And I think that that's the worst case and then in the best case for appreciation I think that there will be another boom interest rates may come down a hair people will realize the world isn't necessarily imploding and I I just think it's gonna get crazy again but who knows we'll see and I don't want to do I want to be very clear about my stance even though you know our business would be great and this and that I don't want to be in that market again.

SPEAKER_00 29:32

It's not fun. It's crazy we're good at winning multiple offers. We've won many multiple offers we know how to play the game we have strategies it's just not fun because we're talking our clients are putting two to three hundred thousand non-refundable earnest money that means if they lost their jobs they lose two to three hundred thousand dollars of their savings or life savings and that that's the that's the reality of what we experience I don't like that market. I love this market where you know I wish there were more transactions but I like being able to negotiate right getting discounts for our clients and we got many discounts um for all of our clients like pretty much every client and and it's a beautiful market it's a more balanced market. We're not so rushed to finding a home so man like prices are supposed to go down that's what the federal government's trying to do we're we're prices in the housing market are supposed to go down but they are not because of this cons because there are other variables of constraint supply and so and sellers aren't not wanting to sell so it's just it's a it's a crazy thing. I think people who have invested in real estate are very smart. They they they made the right move there's just no question about it. I think they are you know could prices backtrack 10-15% maybe the next year or two maybe but then it's it could pop just like in California which it went up 18 what 17 to 18% in just like like this you know I mean it the same thing can happen in the real estate market. So yeah we can go back a little bit but we can pop up way quicker. So yeah. I think that's a good way to end it. All right well thank you guys for watching uh we appreciate you guys uh liking and subscribing it really does help us with our channel and we're gonna cover the market a lot more um we are real estate experts we're we've uh we've been here for a while and we've been uh looking at data just constantly and so we'd love to give you more information so please uh give us that give us that thumbs up and uh we'll see you guys on the next video