Local Lowdown: Is the market balancing? Tentatively, maybe!

August 19, 2022

The median single-family home and condo prices in San Francisco continued to decline from their peaks reached earlier this year. These movements are within the bounds of normal price variability, but after large price gains, it feels like any downward movement signals a market correction. These larger median price moves are partially a sampling issue in that as sales (the sample) have decreased, more outliers can rise to the surface. For example, the homes sold in July were much smaller than an average month, which dropped the median sale price more than we would’ve expected. But that’s not to say prices haven’t come down.
Quick Take:
  • The median single-family home price in San Francisco declined sharply after a similarly rapid rise earlier this year.
  • Demand for homes is clearly softening, as sales declined substantially month-over-month.
  • New listings declined in July, which means that inventory in 2022 will likely peak at historically low levels.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Prices tend to stagnate or contract in the summer and fall months when inventory is at its highest, so we aren’t ringing the alarm bells quite yet. Homes over the past five years have become less affordable, yet demand boomed. With 30-year mortgage rates potentially settling around 5%, fewer potential buyers will participate in the market than they did last year when mortgage rates were at all-time lows.
Supply is still historically low, which will protect prices from experiencing a major downturn. Prices will likely follow a similar trend as last year, holding relatively steady through the summer and fall months. If you’re following home prices closely, as we tend to do, you don’t need to worry about losing equity in your home, or softening demand, or even an official recession — so long as it doesn’t affect your job. The housing market remains strong in San Francisco.

Sales slowdown

San Francisco’s housing inventory has been in decline since March, which indicates that 2022 will likely have the lowest inventory on record. We entered 2022 with the lowest inventory in history, but the number of homes for sale rose over 50% from December 2021 to March 2022, only to trend back toward all-time lows. Over the past 20 months, inventory has trended lower and settled at a depressed level. The number of single-family homes on the market in July 2022 is 50% lower than in July 2020, with 33% fewer condos. San Francisco is particularly sensitive to rate hikes due to the high absolute dollar cost of housing.
The substantial drop in sales and new listings, down 29% and 30%, respectively, from June to July 2022 indicates that demand is softening. We aren’t saying that demand is low, but it’s trending closer to balanced between buyers and sellers than we’ve seen in years.

Months of Supply Inventory for single-family homes and condos diverge

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 on 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). Notably, single-family home MSI has trended slightly lower over the past four months, while condo MSI has risen slightly. Single-family homes are still experiencing a sellers’ market, while condo MSI indicates a more balanced market.


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