July 24, 2024
Quick Take:
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 July 2022. Since July 2022, the median single-family home and condo prices have hovered around $1.5 million and $1.2 million, respectively. However, the horizontal trend may be changing. From December 2023 to June 2024, the median single-family home price rose 14%, and condo prices were up 7%. Year over year, the median price was up 4% for single-family homes and down 8% for condos. Prices are more likely to rise if more sellers come to the market. Inventory is so low that rising supply will only increase prices as buyers are better able to find the best match. More homes must come to the market to get anything close to a healthy market.
High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates above 6%. Now that rates are near 7% again, sales are slowing during the time of the year when sales tend to be at their highest. This phenomenon isn’t great for the market, but it isn’t terrible, either, as it may allow inventory to build in a massively undersupplied market.
In 2023, single-family home inventory followed fairly typical seasonal trends, but at a significantly depressed level, while condo inventory has been in decline since May 2022. Low inventory and fewer new listings have slowed the market considerably. Typically, inventory in San Francisco has two peaks, one in May and one in September, and then declines through December or January, but the lack of new listings prevented meaningful inventory growth. New listings have been exceptionally low, so the little inventory growth throughout 2023 was driven by fewer sales. In November and December 2023, new listings dropped significantly without a proportional drop in sales, causing inventory to fall to an all-time low in December, which further highlights how undersupplied the market has been over the past year.
In the beginning of 2024, we were hopeful that inventory and new listings would resemble historically seasonal patterns. However, new listings haven’t come to the market in the quantity needed to bring a significant increase in inventory. This year, inventory looks to have already seen its first peak in April, which was an early sign that inventory would remain tight in 2024. The second sign was inventory falling to an all-time low in June, which is far from the seasonal norm. The number of new listings coming to market is a significant predictor of sales, and buyers simply aren’t able to buy homes that aren’t for sale. The demand in San Francisco is there, but supply — especially new supply — hasn’t come to the market. Now that we’re halfway through the year, it’s clear that supply will remain tight until spring 2025 at the earliest.
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). 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 has been volatile, moving between a buyers’ and sellers’ market throughout the year. From January to May, MSI declined significantly. In June, single-family home MSI continued to decline, while condo MSI rose sharply. Currently, the single-family home market favors sellers, and the condo market favors buyers.
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