San Francisco Home Prices, Market Conditions & Trends November 2022
Happy Thanksgiving Week
These seagulls flying at sunset are sending the message – to fly high as we give thanks for all of our blessings. It’s a time for family and friends, so step aside from your normal routine and reach out to those you love to show your appreciation during this holiday week.
Gratitude – Joy – Love – Fun
As you have seen in our prior reports, the Bay Area market reports we provide you present a review of year-over-year changes in prices and in supply and demand, reflecting the significant adjustments from the heated (often overheated) conditions recently the norm, but also look at longer-term trends to provide greater historical context. There is also a comparison of home prices within the local market and across the Bay Area.
After a brief rebound in market activity in August, pursuant to what turned out to be a very temporary decline in interest rates and an associated rebound in financial markets, macroeconomic conditions shifted again – with interest rates climbing rapidly to a 20-year high – which took a toll on early autumn, Bay Area real estate markets.
Though across the Bay Area, thousands of homes continued to be sold – a significant, but declining proportion still selling quickly over list price – the general trend was one of cooling demand, less competition, and declining sales.
And, after years of conclusively holding the balance of power, sellers have reacted to the changing circumstances in different ways: Besides increased price reductions since spring, the number of new listings coming on the market is well down year over year, and a much higher percentage of listings than normal are being removed from the market without selling.
The economy and housing market remain in a period of adjustment, causing many people to be more cautious as they wait to see how things will settle out.
All these factors added up in San Francisco to October 2022 having the lowest number of October home sales since 2011.
The market now enters the 2-month holiday period which typically sees the year’s lowest levels of activity: The numbers of new listings and of listings going into contract usually plunge to their annual nadirs, and an increasing percentage of sellers, especially in higher price segments, pull their homes off the market to await the new year. (Many listings taken off market in November and December will be relisted in Q1 2023.) Still, buying and selling continues, though at reduced levels, and this can be an excellent time for buyers to aggressively negotiate prices.
Some highlights of this update:
Year over year, the 3-month rolling, median house sales price in October 2022, $1,650,000, was down a little over 8%.
Year over year, the 3-month rolling, median 2-bedroom condo sales price in October 2022, $1,250,000, was down almost 7.5%.
Comparing October 2022 with October 2021, the number of San Francisco home sales was down about 38% (and the lowest October total since 2011).
Comparing October 2022 with October 2021, the number of $3m+ home sales in San Francisco were down about 43%.
In the latest month, 50% of sales closed over final list price, down from 73% in April. weeks earlier.
The pandemic initially significantly weakened SF markets, especially for condos, which went into market-recession territory. A dramatic recovery began in autumn 2020 to begin the pandemic boom but began cooling in spring 2022. The house market has remained stronger than the condo, co-op, and TIC market.
Houses have higher average overbidding percentages 2022 than condos, but both have plunged since April 2022. This statistic also fluctuates by season and is a lagging indicator of market activity 3-6 weeks earlier.
Selected Excerpts from National Survey of Home Buyers & Sellers
By the National Association of REALTORS® (NAR)
“The median distance between the home that recent buyers purchased and the home from which they moved was 50 miles – a record high and more than a three-fold jump from a median of 15 miles from 2018 through 2021.”
The shares of buyers who purchased homes in small towns (29%) and rural areas (19%) were the highest ever recorded, while the shares of homes purchased in suburban (39%), and urban (10%) locations declined from one year ago.”
“First-time buyers made up only 26% of all buyers, down from 34% last year and a peak of 50% in 2010 during the First-Time Home Buyer Tax Credit. The age of the typical first-time buyer was 36 years – up from 33 years one year ago – and the typical repeat buyer’s age climbed to 59 years from 56 years in 2021. Both ages are the highest in the history of the data set.”
“Seventy-eight percent of recent buyers financed their home purchase, down from 87% last year and driven by the increased share of repeat buyers who paid all cash.”
“The median age of home sellers was 60 years, up from 56 years one year ago. Sellers typically lived in their home for 10 years before selling.”
The housing market continues to trend more toward balance; now is a great time to buy a house if you had the money before but couldn’t compete with the herd.
While interest rate increases must be considered, there may be opportunities with less competition to consider in our current market.
Some Facts from on interest rates, inflation and the financial market:
The Producer Price Index, which measures inflation on the wholesale or producer level, showed that overall inflation increased by .2%, which was half of expectations. Year over year, inflation declined from 8.4% to 8%, which was much cooler than the 8.3% expected. (MBS Highway 11/15/2022)
Based on the Consumer Price Index drop last week and the Producer Price index drop this week, inflation is gradually cooling and the economy is slowing down. The labor market is a major lagging indicator, and the layoffs announced this year further emphasize the cooling trend.
Something else that may help inflation – America’s biggest retailer, Walmart, has a new message for its suppliers: We’re not going to pay higher prices anymore. This has major implications for both inflation and profit margins. It will lead to relief in inflation and add stress on their vendor’s profit margins. (MBS Highway 11/14/2022)
Retail sales rose 1.3% in October, which was stronger than the estimate of 1%. So far, the consumer is hanging in there, but they are likely using credit. This is further confirmed with with last week’s report that credit card debt has climbed to record highs. Consumers are also making different choices – Walmart reported that 75% of grocery market sale gains came from individuals earning over $100,000 per year. It appears even those earning more compared to the median are moving away from more expensive stores like Whole Foods. (MBS Highway 11/15/2022)
Cass Freight is a report that measures shipping costs across the US and can be an important sign of the economy, as all goods need to be shipped in some type of manor, as well as inflation. The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, fell by 4.9% in October. The index slowed to an 11% increase year over year, which is down from 21% in September. Following normal seasonality, this index is now likely to turn down on a yearly basis in December.
Vice chair, Lael Brainard, said in comments to Bloomberg News yesterday that it may “soon” be appropriate to move to a slower pace of rate hikes. She added that Fed has done a lot, increasing rates from zero to 4%, but they still have additional work to do. This likely sets up for a 50bp hike in December (vs 75bp), and then the Fed can analyze the inflation job picture to determine what to do from there. (MBS Highway 11/15/2022)
As a result, of all of the economic news detailed above, Thursday saw the sharpest one-day drop in the average rate on the 30-year fixed mortgage since daily record-keeping began in 2009.
On a weekly average, the rate on the 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.9% from 7.14%.
Forecasting Federal Reserve policy changes in coming months. The futures market continues to see the Fed doing half percent rate hikes in December and February, then holding in March.
So we recommend you keep a watchful eye if you are active. And keep in mind that waiting for the market to shift may cost you more tomorrow in purchase price as the market typically gears back up early year after the holidays. Many of the headwinds that stopped buyers from snagging a new home are softening. After two years of market fervor and fears of a housing bubble, the red-hot market is cooling. And while home prices remain high, buyers who can afford to close a deal will face fewer headaches than they have recently.
We believe in real estate and feel that opportunities will arise and
remain optimistic that the stock market will normalize, and interest rates will balance in 2023 to a new standard and lenders will have products that are beneficial to buyer’s needs.
We are happy to assist your family & friends with their real estate needs – feel free to forward our newsletters or introduce us via email to anyone you know.
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