As was to be expected, the number of homes on the market in San Francisco, net of new sales and contract activity, both pending and closed, ticked down another 3 percent over the past week to 1,790, which is down 11.1 percent from a two-decade high in the absolute last month with typical seasonality in play but still over 90 percent higher than at the same time last year.

On a more granular level, the number of condos on the market, which remains a leading indicator for the market as a whole, now totals 1,380, representing 125 percent more inventory than at the same time last year, while the number of single-family homes on the market has dropped to 410 but remains 30 percent higher, year-over-year.

And having hit a 10-year high in the absolute last month, the percentage of homes on the market which have been reduced at least once, which now includes 31 percent of the single family homes, is holding at 35 percent, which remains the highest percentage of reduced listings since the first quarter of 2012 and 7 percentage points higher than at the same time last year.

Expect inventory levels to continue to drop over the next two months, and reductions to rise, before climbing again in January.

Comments from Plugged-In Readers

  1. Posted by Panhandle Pro

    Here’s my “Zillow Effect” Theory: Homeowners now can regularly see the value of their home via Zillow/Redfin. This cements the value of their home in their mind. Once you have a strong sense of value, selling at any more than a 10% loss feels like an insult.

    Now add in the fact that most of these homeowners are knowledge workers who don’t *need* to sell – they might prefer to sell, but financially don’t need to. Then tack on a sense of progress with the vaccine, as we’ve had today.

    I think we’ll continue to be in a standoff – buyers are waiting for bigger dips to get in, but sellers aren’t willing to budge too much. As a result, I expect prices to drop, on a city-wide index basis, no more than 10%.

    • Posted by Cave Dweller

      If the Democrats win the control of Senate they are highly likely to repeal SALT caps which (I think) is likely to make prices surge higher.

      • Posted by michael

        Caps didn’t hurt prices when they were instituted. Very doubtful they’ll have any measurable impact if/when repealed.

        • Posted by Cave Dweller

          Based on anecdotes, it seems to have made the carrying cost higher. A number of (all) my friends supported Democrats this election cycle hoping for SALT cap repeal. Even if the prices don’t surge, it is going to make carrying costs cheaper and that may give the owners a little bit of more staying power.

      • Posted by 1031 Exchange

        That’ll be a great way to lose house and senate seats in 2022 since the messaging will be that they are helping well-to-do and very blue metropolitan areas. I don’t think we’ll see this happen until 2023 at earliest, if at all.

    • Posted by taco

      For sure. I own a second home in SF. We lost our tenants and it took about 4-5 months to fill the vacancy. In the end, we dropped the rental price by about $1K. Not once did I consider selling because it likely would have been a bigger loss than the carrying costs. To your point, that was all based on a number I believe it is worth.

    • Posted by Neighborhood Character

      One thing to keep in mind is that not all losses are equal, which adds some interesting dynamics to the market. For example, if one is trying to upgrade from a smaller (starter) home, then it may make more sense to sell at a loss, if the more expensive non-starter homes are falling in tandem.

      For example, a 10% loss on a 650K starter home in the East Bay is only a 65k haircut that one may be willing to accept if it means being able to buy a 1.5M for 150K less — remember it’s not just the nominal value, but the carrying costs (taxes) as well. Furthermore, the lower end homes tend to be more stable and liquid than the higher end, so a less expensive home falling by 10% could mean that one that’s 2.3x more expensive falls a lot more due to a smaller pool of buyers.

      Here’s a few scenarios that could influence one to take a loss:

      – Knowledge workers you referenced seem to be doing unexpectedly great via their RSUs and may have settled for a home based on a much lower RSU value, and now they suddenly have more options.
      – Lots of tech IPOs recently, suddenly a lot of those knowledge workers can upgrade from their starter home they bought when their shares weren’t liquid.
      – They purchased a smaller home closer to downtown/work, but now with many things closed, living downtown is a lot less desirable than having more space outside of the city center. A small loss may be worth the trade to a larger home that’s more WFH-friendly.

      While I’m not suggesting that tech workers make the majority of the market, I could see them be the catalyst that ends the stalemate you’re referencing, because those upgrading will necessarily create liquidity in the market downstream. Furthermore, now that they can work from anywhere, they might decide to cut their losses and sell even at a nominal loss, since their cost of living will more than make up for it elsewhere.

  2. Posted by KOBking

    Just read a news story that real estate is up 20 percent in the Bay Area and 9 percent in SF for September. How do you square if with your analysis?

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