November 17, 2023
In San Francisco, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from May 2022 to January 2023. Since January 2023, single-family home prices have increased 15.9%, with the majority of that gain coming in the past three months. Condo prices haven’t experienced huge variances this year, trending horizontally. We don’t expect another wave of new listings in the fourth quarter, so the market will likely slow, which is typical this time of year, and the declining number of new listings will create price support.
Typically, demand begins to decline in the fall and bottoms out in January, so the consistently low supply should be less of an issue. With mortgage rates at a 23-year high, buyers have more incentive to compete over the most desirable homes. Because of the cost of financing, homebuyers aren’t settling for less than the best home they can find.
Since the start of 2023, single-family home inventory has followed fairly typical seasonal trends, but at a significantly depressed level. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory peaks in July or August and declines through December or January, but the lack of new listings prevented meaningful inventory growth. This year, sales and inventory peaked in May, while new listings peaked in September. New listings have been exceptionally low, so the little inventory growth from February to May was driven by fewer sales. The number of new listings coming to market is a significant predictor of sales. In September, new listings rose 32%, and in October, sales increased by 37%. Year over year, sales and new listings are down 10% and 28%, respectively.
Demand spiked in October after a surge of new listings came to market, giving sellers slightly more negotiating power, and buyers paid more than asking price on average. The average seller received 96% of list in January, which grew to 102% by June. The amount sellers received declined below list price into September 2023, but rose to 101% of list in October.
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers in the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). The San Francisco market tends to favor sellers, at least for single-family homes, which is reflected in its low MSI. However, we’ve seen over the past 12 months that this isn’t always the case. MSI indicated that single-family homes and condos began the year in a buyers’ market. MSI declined in the first half of the year for single-family homes, indicating that the climate shifted from a buyers’ market to a sellers’ market. However, in the third quarter, MSI rose substantially, indicating a buyers’ market once again. In October, sales rose considerably, dropping MSI below three months — back to a sellers’ market. Condo MSI moved from a balanced market at the end of the first quarter of 2023 to a buyers’ market, and it has remained a buyers’ market since April.
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