State of the Bernal Heights Real Estate Market

July 19, 2022

Buying and Selling Guide to Real Estate in Bernal Heights 

 
As a top-producing local real estate team, we’re committed to giving you excellent, personalized service. This guide offers a timely analysis of the condo market for San Francisco Real Estate District 91 and the Bernal Heights neighborhood that will answer your questions and help you develop a winning buying or selling strategy. 
 
As we write this guide, interest rates are rising rapidly. Potential buyers are acting quickly to take advantage of low-interest financing as it comes to a close. Residential real estate has shown its enormous value over the past two years, inspiring many buyers to come to the market. The consistently high demand for homes has driven down inventory and raised prices across the country. With no clear end to the housing shortage in sight, home prices will appreciate or maintain their value even if demand decreases due to rising mortgage rates. 
 
While the fundamentals of developing a winning buying and selling strategy remain the same, you should also consider current local housing market indicators. To give you an overview of the District 9 market, this guide will cover the following topics: 
 
  • Housing Market Behavior During a Housing Shortage. 
  • District 9 Supply and Demand Trends for Single-Family Homes and Condos. 
  • Key Housing Market Indicators for Bernal Heights. 
  • The Importance of Listing a Home at the Right Price. 
 
Housing Market Behavior During a Housing Shortage 
 
Overall, the single-family home market has experienced incredibly high demand over the past two years, causing prices to climb. In May, the median price for single-family homes reached an all-time high in District 9. Clearly, the mortgage rate increases have yet to negatively affect prices. In District 9, we expect the lack of supply to matter more than the rate hike, at least for now. Mortgage rates are climbing quickly and have already hit a 14-year high.
 
 
Overall, the condo market has experienced a difficult two years in terms of price appreciation — until recently. In April 2022, condo prices reached their first new peak since November 2021, although prices declined in May. After the pandemic hit, inventory skyrocketed and didn’t return to pre-pandemic levels until December 2021. The more recent condo demand has lifted prices and reduced inventory significantly. We expect elevated condo demand going through 2022.
 
 
Supply and demand and mortgage rates have significantly driven prices over the past year. The National Association of Realtors, for instance, reports a 5.9% year-over-year decrease in existing home sales nationwide. Locally, San Francisco is experiencing a 10.6% decrease in homes sold year-over-year, which isn’t surprising given the lack of inventory. As the Federal Reserve continues to raise rates, the era of super-low-rate financing is coming to a close, creating a short-term bump in demand as homebuyers try to lock in a lower rate before mortgage rates climb higher.
 
 
The average 30-year fixed mortgage rate in the United States increased 2.67% in 2022, negatively affecting affordability. For example, increasing a homeowner’s rate by just 1% would cost them about $500 per month on a $1,000,000, 30-year mortgage. Because rates are expected to continue rising, short-term demand has increased, lifting prices even higher.
We expect the housing supply shortage to continue through 2022. Nationally, homes are undersupplied, making it an exceptional time to sell, and we don’t see this changing anytime soon. Whether you’re planning to buy or sell, we can guide you through the options that best fit your needs.
 

District 9 Supply and Demand Trends for Single-Family Homes and Condos

 
Single-family home and condo inventory has trended lower over the past 18 months. The high demand largely offset new listings and dropped inventory to record low levels as we entered 2022. During times of normal seasonality, inventory climbs in the first half of the year and declines in the second half. The decline in homes for sale in April and May strongly indicates that supply will remain extremely tight this year.
District 9 is in a state of undersupply relative to demand for homes, which speaks to the desirability of the area. More people want to move to or stay in District 9 than leave. This means that more new listings benefit the market by alleviating the excess demand. We expect home values to remain stable or increase in the coming months.
 
 
Months of Supply Inventory (MSI) — the measure of how many months it would take for all current homes for sale on the market to sell at the current rate of sales — is typically low in the area. In California, long-term average MSI is around three months, which implies a balanced market that doesn’t favor buyers or sellers. In May, MSI remained at low levels for both single-family homes and condos, indicating a strong sellers’ market.
 
 

Key Housing Market Indicators for Bernal Heights

 
In this section, we analyze the single-family home and condo markets across several key indicators to provide the necessary information for you to refine your winning buying and/or selling strategy. As market conditions change, we can look at the data in real time to make the best decisions.
 
 
In May, single-family home prices rose year-over-year in terms of median price and price per square foot, while condo prices rose only in terms of price per square foot. Because only one condo sale occurred in May, using price per square foot is a more appropriate metric for assessing home value increases. Sales declined, which isn’t surprising given the low inventory.
 
The current housing market favors sellers in Bernal Heights.

MSI was exceptionally low in May for single-family homes and condos, which means that the market favors sellers. Because the environment favors sellers, we might see more inventory come to market, though we do not expect that to be the case.

The Days on Market (DOM) implies that sellers should expect offers to be accepted in about 18 days for single-family homes and 13 days for condos. If it takes longer to receive offers, sellers should consider reducing their prices. Buyers should proceed with caution and consult with an experienced agent before making an offer on a home that has been on the market for longer than the average DOM because the price may be too high, or something may be wrong with the property.

Sale-to-list-price ratio — a measure of the difference between the original list price of the home and the final sale price — reflects the negotiation power of homebuyers and home sellers under current market conditions. The average single-family home sold for 117% of its original list price, while condos sold for 113% of list, which means buyers and sellers should expect to negotiate offers well above list price.
 

The Importance of Listing a Home at the Right Price

 
We can split homes sold into two categories: homes sold without price reductions and homes sold with one or more price reductions. Price reductions may indicate problems that need to be fixed, poor marketing, and/or bad showings. More often, however, price reductions occur because the home was overpriced and misaligned with market data from the time it was first listed.

Overpricing a home can create a negative feedback loop. Initial offers fail to materialize because the home is overpriced, the Days on Market surpasses the average, and new potential buyers assume there’s something wrong with the property. More price reductions and low offers might follow as the home sits on the market, causing the final selling price to come in below what the property could have garnered had it been priced correctly in the first place.

For an example of such a scenario, we can look at the two-year average single-family home data.
 
In an average month, 15 homes sell without price changes, recording an average of 113% of their original list prices and spending 22 days on the market. In contrast, the two homes (on average) that sell with one or more price reductions record only 96% of their original list prices and spend nearly three times as long (61 days) on the market. These numbers underscore the importance of a well-informed pricing strategy.
Conclusion
In the coming months, we anticipate more sellers coming to the market, the seasonal norm. Demand for homes is still incredibly high, even with rising mortgage rates, which will prevent inventory from normalizing throughout the rest of the year. Overall, the housing market has shown its resilience through both the pandemic and this new chapter of rising mortgage rates and inflation, remaining one of the most valuable asset classes. The data show that housing has remained consistently strong through this period.

As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this white paper. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.
 

Conclusion

 
In the coming months, we anticipate more sellers coming to the market, the seasonal norm. Demand for homes is still incredibly high, even with rising mortgage rates, which will prevent inventory from normalizing throughout the rest of the year. Overall, the housing market has shown its resilience through both the pandemic and this new chapter of rising mortgage rates and inflation, remaining one of the most valuable asset classes. The data show that housing has remained consistently strong through this period.
 
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this white paper. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.

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