One question I get quite frequently from my clients is: when is the best time to buy a home? Though there is no easy one-size-fits-all answer in terms of what is “best”, there are some things to consider when timing your home purchase – like seasonality. Let’s dive in.
Typically, the purchase of a new home is one of the largest financial transactions and investments of one’s life. Whatever home you purchase should work for you now, fulfilling your basic housing requirements at an affordable monthly cost. Ideally, it goes beyond the basics and even beyond being an investment: it is a home you love.
Every buyer (and seller) dreams of timing the market. Of course buyers want to get in at the lowest price possible; and, while this is understandable, it’s also impossible. Markets can not be timed, and we’ve met many buyers over the years who waited for the next big crash only to find the single family home they could have purchased for 1.5 million seven years ago is now 2.2 million and they can no longer afford it.
If your finances align with your needs, my recommendation is to bite the bullet and dive in. If you plan on holding on to the property for five to seven years, there may be a dip, but you will recover, and more than likely you’ll gain the equity needed to help you buy a better house later than you can afford today.
Spring and fall are the most popular seasons for home sellers to put their homes on the market.
The spring has a longer, slower run up, but this is typically the season when we see prices get pushed to new highs. There is typically pent-up buyer’s demand for those buyers that didn’t buy in December and early January. You will see median home prices go up in March, April, May, and June. Keep in mind that when we look at the data, prices represent months that sales closed—typically, they actually went into contract the month prior. So, for example, May sales figures actually represent homes that went into contract in April.
And, we have noticed the spring season beginning earlier and earlier. After the holiday doldrums, we see new inventory that you may be eager to jump on. Therefore, the “spring” season in San Francisco really starts as early as late January and runs through May. Look for homes to start trickling on to the market right after the New Year with the height of the inventory from March to June.
The fall season is also popular, but more hurried, as buyers and sellers rush to take advantage of the shorter window after the summer travel season and before the annual holiday slowdown. In fact, September is the month that routinely has the largest number of new listings.
This pattern is particularly true for luxury listings, which are even more impacted by seasonality. Buyers and sellers at this price point are more likely to take extensive vacations and other trips out of town during both the summer and the winter holiday seasons.
We often see buyers get a little paralyzed in the fall from the paradox of choices. After having very little to look at in the summer, suddenly there are a lot of choices and it can be difficult to pull the trigger; some buyers wonder what else might be coming the next week.
We also see buyers very slow to make decisions because prices can be a little softer due to all the inventory. It’s not unusual for buyers to think the market is going to go down, and wonder if they should wait for the crash. I have noticed this EVERY fall for the last 10 years. The buyers who take advantage of the softer market, often get a little better deal before prices surge again in the early spring after a very slow winter. Many buyers who start to feel desperate after looking all fall and winter finally begin to feel ready in the spring, and then over bidding starts.
In the summer, there are plenty of buyers looking and getting increasingly frustrated by the lack of new listings. As we know, competition drives prices and if there is less competition, you could be in an advantageous condition. There still will be a solid amount of great inventory (though not as much as you’ll find in the fall and spring), and like we mentioned, less competition from other buyers who are on vacation during the summer months. We recommend keeping your eye on the ball during the summer months and to be ready to buy something when it comes up.
The selling season in San Francisco typically comes to a halt at this time, before springing back to life pretty quickly in the new year. This year (2020) however, seasonality didn’t really follow protocol, and there were a lot more active listings in December 2020 versus December 2019, as well as a lot more pending sales. In fact sales ended up 104% higher over December 2019.
We never recommend stopping your search, but being aware of seasonality may help you feel less frustrated during the times when there are likely less listings.
Historically, San Francisco real estate has proven to be an excellent investment over the longer term, no matter when you buy. This is due to the advantages of leverage (the ability to finance much of the purchase); the significant tax benefits of home ownership; economic, demographic and geographic conditions in the city; and long-term appreciation trends. Among other things, real estate is usually considered one of the best hedges against inflation.
And if one doesn’t “refinance out” increasing home equity, home ownership (as you pay down the principal balance on your mortgage month by month) typically acts as a “forced” savings account to build household wealth. In addition, the $250,000/$500,000 tax exemption on home appreciation capital gains can supercharge the financial return when you do sell.
Any investment has both potential risks and rewards—which only you can weigh according to your financial circumstances, your timeline, and your projection of future economic trends. You should also consult your accountant for a more detailed analysis of the above factors. Please note that tax law is subject to change at any time.
Here to help
Like we mentioned in our Advantages of a Dedicated Buyer’s Agent blog post, if you are looking to enter the market as a buyer, it’s very important to have a good agent to represent you. As top ranked buyers agents in San Francisco, we use our years of experience to advise you on the San Francisco market. Call the Krishnan Team at 415-735-5867 for a no-obligation consultation. You can also email us at firstname.lastname@example.org.