2022: May San Francisco Real Estate Insider
Looking back at April, the Bay Area continued to see home price appreciation, overbidding and days-on-market, reflecting an extremely intense demand. One of the big drivers of an intensely competitive market in April was buyers who locked in mortgage rates (before the big increases) and were highly motivated to buy before their interest rate locks expired. But, as of the past four weeks, we are seeing the start of a market shift. This should be no surprise as interest rates are up (a shocking 69% in 2022), volatility in the stock market (the S&P is down ~14% and the NASDAQ ~22%), the increase in media coverage of negative economic / market issues and the power of inflation (at a 40 year high).
In the agent community, many of my colleagues and I are seeing less traffic at some open houses, fewer offers on new listings, some buyers dropping out or becoming much more selective and some sellers moving their listing dates sooner than originally planned. This may sound like the beginning of a bursting bubble- I don’t see that. Single family prices are still up. Sure, many homes are receiving fewer offers, but the eventual sale price is still high. The trend is a flight to quality vs. quantity on the buyer front. Also, quality always sells. Well located homes in move-in condition are always going to command attention and offers.
The cooling of the market is most evident in the sub-$2m category. Obviously interest rates have a huge impact in this category, pushing down affordability overnight. This coupled with the fierce competition amongst buyers is enough to put many buyers on the sidelines.
So where is the San Francisco market heading? Two observations; first, even the hottest markets eventually cool. This does not necessarily imply a large “bubble or crash.” This would be a cooling shift, typically a gradual decline in sales activity, and then either a leveling off in appreciation or possibly small price declines. Second, since the mid ninety’s, we’ve experienced a reverse migration trend; people moving from the suburbs to San Francisco. This trend has reversed and the outflow to the suburbs is stronger than the inflow. Will this be another 30 year trend? Nobody knows, but I see two factors that will be huge influencers. First, back to office or where you need be to perform your job function. Big employers have been hesitant to “force” employees back to the office as there has been resistance and the skilled workforce pool is very shallow. Just 33.4% of San Francisco workers were back at their desks last month. Second, the quality of life issues and cost of living in San Francisco need to beget addressed. The former can be addressed, the latter not so much.
Speaking of inflation, we’ve all noticed our groceries are more expensive. But, inflation has been around forever. Here are some price comparisons from 1980 to today.
Below are some key data points of interest.
