While the net number of homes on the market in San Francisco (i.e., inventory or supply) ticked down 5 percent over the past week with typical seasonality in play, there are still 22 percent more homes on the market than there were at the same time last year and over 50 percent more than there were prior to the pandemic.

At the same time, the number of homes in contract to be sold is now 45 percent lower than at the same time last year and pending home sales activity in San Francisco is at its lowest level in over six years on a seasonally adjusted basis, with the average list price per square foot of the homes which are in contract having dropped under $940 per square foot, which is 6 percent lower than at the same time last year and down 7 percent since May.

22 thoughts on “Price per Square Foot Keeps Dropping in San Francisco”
  1. Next spring is going to be ugly. Just as FOMO drove the last cycle. Fear of losing one’s shirt will drive a wave of For Sale signs and a correction.

    1. And/or the differential between current high mortgage rates and vastly lower recent rates will retard the “normal” turnover of houses as potential sellers/downsizers/upsizers consider how much more expensive it will be to switch to different housing.

      1. When layoffs start really kicking in (they already have begun), the luxury of “I’ll sell when I want” no longer applies.

      2. Or on the other end. Long term owners and/or people with a great deal of equity may find the difference between selling at the top and selling 20% below the top to be insignificant. The real overall question is: Will enough sellers hold off selling to forestall price discovery? Probably not, I think. People floated this idea last cycle in 2007 and it didn’t happen then. Just too many categories of people who can’t/don’t want to hold out. Forced sellers, sellers with enough gains to still be happy selling below peak, investors, second homes…

        There seems to be a spirited (if nit-picky) discussion on another thread about the categories and quantities of non-owner occupied housing. But I think the main thing that matters there is that there is probably enough that, when combined with distressed owner-occupiers and owner-occupiers insensitive to declines from the peak, it will cause the market to “un-stick” and price discovery to occur.

        1. As we’ve noted a few times over the past few weeks, despite the poor market conditions and popular notion that nobody would sell unless they had to at the time, over 20,000 homes traded hands in San Francisco from 2008-2011.

          1. 2011 was a great time to buy. Tons of inventory and few buyers. I scored an exceptional resell that had closed as a brand new unit for $956 a sq, ft. in 2008 for $370 a sq. ft.

          2. 2008-2011, good times.

            I bought 4 places and sold 4 places during the timeframe. This is about the last time the price of the total fixer was a really good deal. Not sure they were distressed sales, but distressed properties were on sale.

        2. Yes. The people who floated the idea “last cycle in 2007” that a large number of potential sellers would hold off selling long enough for the price level to avoid moving meaningfully lower were wrong. But the people floating this idea underestimated the number of people who ultimately sold because they had to.

          It seems to me that the chief difference between now and that era is pretty obvious. Then, lots of people were forced to sell because they were overleveraged or faced ARM resets to a higher rate. This time, about six of every seven (85%) U.S. homeowners with mortgages have a mortgage interest rate far below today’s level of 6%. These owners are not “distressed” and don’t have to sell unless they lose their primary source of income.

          In about ten years, some eager beaver econ grad student will get a pretty good paper out of documenting the seller’s strike of 2023.

          1. That’s a good observation. A related factor is that lots of great financial crisis sellers had put nothing (or almost nothing) down. Selling at a loss, or a foreclosure, was literally walking away from a loss rather than absorbing it. So they did that. People are much more reluctant to sell when they will have to recognize a substantial loss by doing so. Some people will still sell this time around, even at a loss, for a lot of reasons. But I doubt we’ll see distressed sales in anything approaching the 2007-11 numbers. I’d still wait if I were in the market to buy. The economy is humming along so I don’t predict a gfc-style bloodbath, but I don’t think prices will bottom out for a while (heck, they’re still up year over year per case shiller).

          2. Actually, the relatively low percentage of subprime, adjustable rate and leveraged exposure (think “all the all-cash buyers”) was the common industry argument for why the San Francisco market wouldn’t take a hit in the last downturn, which it most certainly did, and it’s rather ironic to see the previous market conditions now being recast (“lots of people were forced to sell because they were overleveraged or faced ARM resets to a higher rate”) as to why it’s different now.

            Once again, despite the poor market conditions and popular notion that nobody would sell unless they had to at the time, over 20,000 homes traded hands in San Francisco from 2008-2011. And in addition to losing a job, people simply decide or need to move, get married and have kids, or get divorced, get sick and die, or retire having planned to tap the equity in their homes.

          3. Are you saying that peopled argued in 2007 that there were not a lot of over-leveraged or no-down borrowers? Okay, but that was clearly wrong. There were scads of them. But we’re in agreement that is not the current situation, correct? Completely agree some will have to sell and some will just sell regardless despite taking a loss. But that’s different from armies walking away from underwater mortgages because they actually did not take any loss by doing so (the banks did, hence the financial crisis). Lenders and regulators wised up after that.

          4. The vast majority of home sales in San Francisco from 2008-2011 were not “distressed,” much less short sales nor the result of anyone walking away. You’re arguing hypotheticals based on incorrect assumptions, not facts.

  2. Just curious: what do the long-term trends in $/square foot look like for SF? I don’t recall seeing these anywhere, but I may have missed them.

    1. Certainly true that the vast majority of SF home sales from 2008-11 were not distressed sales. But something like 500-600 a year were foreclosures with hundreds more short sales or other distressed sales. That’s a big enough percentage to set the market. Those went at fire sale prices which everyone else then had to compete with. Without that large number of sellers walking away because they simply did not care about a loss (since others took the loss), you’re not going to see the same degree of downward price pressure. You didn’t see the same housing price stickiness you usually see because homeowners don’t like to sell at a loss. But I agree that some people will sell at a loss in the current downturn. Those looking for broad 30% discounts are likely to be disappointed.

      1. With the exception of some collusion on the courthouse steps, which is effectively a different market, every property that sold from 2008-2011 went for as much as the market would bear, regardless of the seller’s financial situation or distress. Which brings us back to the fact that the vast majority of sales from 2008-2011 weren’t distressed and occurred despite the poor market conditions and popular notion that nobody would sell – unless they had to – at the time.

      2. “In about ten years, some eager beaver econ grad student will get a pretty good paper out of documenting the seller’s strike of 2023.”

        While I don’t have the same negative opinion of non-owner occupiers that you & two beers share, I do think that their presence can change market dynamics.

        While sticky home prices (taken to your extreme a “seller’s strike”) have been observed, partly due to some owners reluctance to sell at a nominal price loss, this has never been an absolute barrier to price declines. Firstly, inflation can and has eaten away at real prices. Inflation can allow real prices to come back in alignment while still providing the illusion of loss avoidance. Secondly, it’s far from clear that a strategy of holding out for as long as it takes to avoid a nominal price loss is actually a good strategy. The time value of money (Opportunity cost), real vs nominal gains, the value of liquidity and the sunk cost fallacy are all MBA 101 topics that most investors will be familiar with and take into account. Having a concentration of investors in a market can help un-stick a market by injecting some rational action in.

        A true attempt to corner a market by concerted action (by buyers or sellers) requires near uniform compliance to be successful. Else as they say: You don’t need to outrun the bear, you just need to outrun the slowest member of your party

        1. Not sure if this reply should go here or upthread, and there might not be an easy answer, but will the unemployment check cover the mortgage for the soon be thousands of laid-off tech computer sector workers in SF? That check will go further, elsewhere.

          Personal anecdata, of course, but a wet walk around the Mission and Duboce Triangle today showed more For Sale signs than I ever recall this time of year.

          1. You didn’t say what companies you’re referring to by “computer sector” workers, but I’d guess that most of those laid off won’t be needing unemployment checks because they will simply get jobs at other companies.

            The members of Twitter’s data platform team that were laid off last week operated one of of the world’s largest known Druid clusters, a world-class Hadoop cluster and have contributed code to open source projects including Beam, Presto, Airflow, Kafka and a laundry list of other cutting edge software. Those are highly in-demand skills and the people with them will be snapped up on the open labor market.

            The people on Twitter’s content moderation and human rights units might have trouble because Facebook…er Meta is also doing large layoffs in similar roles, so they’ll be more competition, but are there that many of them to cause a meaningful impact on the local housing market? I don’t know.

            I do know that it would be helpful if people stopped conflating “computer sector” or “tech” with social media companies. Just a personal pet peeve of mine, I realize the lazy national media drives this. Social media companies are in the same business as the New York Times or CNBC, they just rely on their viewers to contribute content that they place ads around rather than paid staff.

            I share the schadenfreude when it comes to the folks in cryptocurrency, however. Hopefully those people will go on to work on something socially useful in their next jobs (which again, I am sure they’ll get regardless of what I think of their so-called “industry”).

          2. “You didn’t say what companies you’re referring to by “computer sector” workers”

            Everything from pizza delivery app officer managers, antisocial media moderators, “Buy Now” button hoverstate padding jockeys, crypto conperson “accounting” departments, real estate zipcode comp mappers, livery service arbitrage fraudsters, and even actual computer science engineers (although the ranks of the latter are dwarfed by get-rich-quick unicorn bloat of all the former). At least “computer sector” has a tangible noun that filters some of the extraneous jobs above if applied critically; “tech” has become a financial bubble buzzword that hypnotizes vulture capitalists and loan officers into greenlighting money for any frivolous, marginally-related garbage. “Tech” should only ever be used with tongue in cheek…

            As for “socially-useful” repurposing of the soon to be masses of unemployed techsters, I wouldn’t count on it. Our masters of capital have no interest in trying to prevent climate catastrophe or improving the quality of life for anyone but themselves. Laid-off techies will likely get somehow repackaged to once again be the foot soldiers in the next asset bubble in the class war that never sleeps.

          3. Not to pile on, but piling on: according to the comical: “The bulk of [twitter’s] San Francisco layoffs, 592 employees, were described as “professionals,” followed by 147 mid-level managers, 25 administrative support workers, 11 sales workers, and nine executives and senior managers.”

            I don’t know how much kafka hadoopdeedoo is in that now-unemployed cohort, but I do anticipate a growing line and increasing outbound rates at U-Haul…

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