First-time San Francisco home buyers still eager despite interest rates

Even though the Federal Reserve raised interest rates by another half percent Wednesday, San Francisco’s real estate market does not...

Even though the Federal Reserve raised interest rates by another half percent Wednesday, San Francisco’s real estate market does not show signs of slowing.

Local buyers — including those entering the housing market for the first time — don’t seem to be deterred by higher borrowing costs, according to an April report from Compass.

The median home sales price reached $1.49 million in San Francisco and $1.55 million in San Mateo County in March, according to research firm CoreLogic. The root of this activity is simply supply and demand.

The City’s white-hot market has made it an expensive place to live for years. People have made philosophical or financial concessions for decades. Even though mortgage rates have inched up, the lack of supply keeps the competition fierce.

For first-time home buyers, those conditions are compounded by an initial lesson on the basics.

“There are honestly not many of us (because) inventory is low,” Jenna Eastman said of first-time buyers in San Francisco. “I moved here with my fiance about four years ago and about eight or nine months ago we were like, ‘Let’s look around.’ We had absolutely no idea about the real estate market. … It was quite the learning curve.”

While Eastman and her soon-to-be husband had specific ideas on where they wanted to live, the current state of the market forced them to be more open-minded. When they had issues landing a home in Cole Valley, they considered NoPa. When fees on a traditional condo soared, they pivoted to a tenancy in common (TIC) unit.

“We knew two other couples going through the same thing, one of whom bought a TIC in Cole Valley a little bit before we did,” said Eastman, who followed suit and landed a TIC in Cole Valley.

While Eastman has the anecdotal experience to vouch for the highly competitive nature of purchasing a place to live in 2022, real estate agents Aaron and Michael Bellings point to market statistics to back it up.

“Once the vaccine became widely available, the first-time buyer market especially blew up. … Everyone was tired of the tiny apartment they had been stuck in for two years. Interest rates were low, people were saving money and they were ready to invest in a market coming back,” Michael Bellings said.

This movement exacerbated existing high prices, causing prospective residents to come to the condo side in droves. The once-hurting category became a commodity, with median condo sales topping out at nearly $1.3 million in the last quarter of 2021, according to Compass.

“The vast majority of The City is now above pre-COVID pricing. We’re still seeing some 2017-2018 pricing especially downtown, in the Financial District and SoMa — basically anywhere adjacent to downtown,” Aaron Bellings said. “People buying there now might be the smartest people around in a few years.”

When it comes to first-time home buyers, the brothers try to prepare people to not only spend $1 million or more but to remain resilient through failed bids.

“We do try to set proper expectations and set them up for success, but psychologically it is draining and exhausting to get really excited about a home, read the disclosure documents and write the personal letter about why you love it (and then) to get shot down,” said Aaron Bellings.

On top of fewer listings than usual resulting in high prices, first-time buyers are among the many subcategories of people experiencing what agents call buyer fatigue. They face an array of possible hurdles to jump, including multiple bidders and the growing popularity of all-cash offers.

“We are seeing a lot of cash used because you can still get a loan within the first 60 days. Most banks allow this strategy. Cash is a vehicle that can be used in order to get an offer accepted,” Michael Bellings said of the tactic explained by Quicken Loans recently as “delayed financing.” Delayed financing involves placing cash on a property to cover the purchase and closing costs before seeking out a mortgage.

With 30-year mortgage averaging 5.45% before this week’s rate increase, first-time buyers are looking at higher monthly payments.

“Psychologically, it comes down to monthly payments with first-timers,” Michael Bellings said. “They know how much rent costs, how much parking costs. It’s hard for them to pay more when six months ago the interest rate (was lower).”

Eastman admitted to having encountered this added pressure. Working alongside her partner, Eastman leaned into her priorities before making a decision around a monthly mortgage rate.

“We rent a place right now, and we love it so we were perfectly happy to stay. … We understood if it’s not obtainable in the next few years that’s OK and we would be fine,” she said. “We knew we weren’t willing to sacrifice certain things. … We stuck to what we wanted and luckily it worked out.”

Eastman has no regrets about going through the grueling process of extending nine bids before her lucky 10th bid. Her pro tip for prospective buyers: Practice patience as best you can.

“That’s easier said than done as I have none,” she joked. “It only takes one offer to go through. Who knows if we hadn’t seen (our unit) that same day. It’s all about the timing.”

Real estate agents and brothers Michael and Aaron Bellings say the first-time buyer market exploded once COVID-19 vaccines became widely available. (Thomas Kuoh)

Real estate agents and brothers Michael and Aaron Bellings say the first-time buyer market exploded once COVID-19 vaccines became widely available. (Thomas Kuoh)

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