Having hit a 7-year high last month, the number of homes listed for sale in San Francisco has ticked up another 6.6 percent over the past two weeks to 950, which is 29 percent higher on a year-over-year basis and 41 percent above its mark at the same time in 2015 (which remains an inflection point for the current cycle).
At a more granular level, the number of single-family homes currently listed for sale in the city (360) is now running 46 percent higher versus the same time last year while the number of listed condominiums (600) is 20 percent higher, year-over-year, not including the vast majority of new construction condos for sale across the city.
In terms of pricing and expectations, 17 percent of the active listings in San Francisco have undergone at least one price reduction versus 15 percent at the same time last year, while 33 percent of the homes on the market are now listed for under a million dollars versus 31 percent last week and 32 percent at the same time last year.
While inventory levels could continue to climb through the middle of October, they appear to nearing a seasonal peak. But with recorded home sales in San Francisco running 5.9 percent lower on a year-over-year basis in August having dropped to a seven-year seasonal low in July, there is room for some atypical movements in inventory levels over the next few weeks.
Et Tu, Single Family Homes?
Another data point consistent with the progression of the market through the tail end of a RE cycle. Way back when, the “endless summer” crew assured us that the rocket ride of prices would continue because “buyers are waiting on the sidelines” just waiting to keep prices shooting up. Then there were early signs of weakness in the condo market, then price weakness. Then the “endless summer” types assured us that this was a particular pathology of the condo market. And now we see a strong uptick in the SFH inventory pairing with an increase in price reductions (and on the heels of the condo price weakness we’ve seen). And with slow sales to boot!
This is classic RE cycle dynamics. On the upswing, rising prices feed back into demand. What price is too high if things are rising at a double digit clip?? 15% up from $1M is $150k, 15% up from $1.5M is $225k!! Buy the most house you can afford. But when the price increases flatten, high prices translates into high holding costs for nothing more than the privilege of losing a chunk of your equity to selling costs. Far less demand for that deal! And on the down-slope, you are paying high holding costs just to get the opportunity to bleed equity. That’s a really tough sell!
And there is a mirror dynamic for sellers. On the upslope, indecision about coming to market is rewarded by increasing prices. There is an incentive to hold off. But once things top out, the shot clock starts ticking. Time becomes money again.
San Francisco has been boom-bust literally since the gold rush. So it was always a very tenuous argument that this particular boom was the one that wouldn’t bust. But it’s equally true that we’ve recovered from each of those previous busts. So I disagree with some posters here that think this decline represents a fundamental decline of the bay area region. I think this is purely a cyclical phenomenon, albeit one with a very large amplitude. If you look at long tern housing graphs, these last two cycles have been extreme outliers. And that large amplitude increases the cyclical dynamic for sellers as well as buyers. I’m certain that after this cycle fundamentals will recover. But when? And at what valuation levels?
And remember that this recent cycle was hardly naturally occurring! The fed pumped $4.5 Trillion!! to keep down interest rates and there were unprecedented bailouts of banks and Fannie/Freddie. And still it was a 10 odd year cycle. Looking at a probably 15 year out peak of uncertain height, many sellers have and will decide to “get some while the getting is good”.
The increase in the numbers is, in part, folks betting the market is near a top for the current cycle and getting out. With caveats. Selling a home one purchased for 800K 10 years ago for 1.6 million (the typical scenario in my neighborhood) does one no good if they relocate within the city or Bay Area. The property tax bill will double. Some of that is happening but my guess is a good portion of the increase is from sellers who are leaving the region and likely the state. 4 homes near me are on the market. 2 of the families have a worker who has decided the time is right to take that job offer in another metro area. Cash out close to perhaps the peak. Another couple is winging it. Selling and leaving the Bay Area without a promise of a job waiting for them somewhere. Only one of the four sellers is “moving up” within the BA. Moving to San Mateo to get a much larger house for their growing family. Another big factor is probably retirees looking to cash out and move to a less expensive area and freeing up a nice cash nest egg for their future.
Dave wrote:
Maybe people are holding out, waiting to see if Proposition 5 passes before they downsize homes.