The Story of Summer
June 2023 Update:
The story of the summer, and what has been the story of the year, is "lack of inventory". Although prices are down from the peak of last year when buyers were rushing to buy before interest rates skyrocketed, they have not fallen as far as people would expect. In some cases, they are maintaining close to last year's prices. These stronger than expected prices are directly related to lack of inventory. Demand has been stronger than expected and supply is limited. Normally with increased interest rates, local employment layoffs and economic uncertainty, prices fall significantly, but due to lack of supply, prices have been artificially higher than they probably should be, or one would expect. We don't foresee an influx of inventory coming this year for the simple reason that homeowners are hesitant to sell their home and buy a new home when they are locked into a historically low interest rate. Rates are not coming back to where they were anytime soon, or possibly ever, meaning our market is heading back to being a seller's market for the foreseeable future.
Low inventory Continues to cause prices to be "artificially higher"
Increasing demand and low inventory are once again driving home price appreciation that San Francisco has experienced in recent months. Last year, single-family home prices peaked in April, and condo prices peaked in May, as buyers rushed to lock in a lower mortgage rate, but this was followed by a return to the longer-term trend of decline. San Francisco was one of a handful of markets that didn’t benefit strongly from the pandemic homebuying boom, seeing more people migrate out of the city than in. Once people were ready to come back, the Fed announced rate hikes at the end of 2021 that would swiftly affect rates in 2022. The average 30-year mortgage rate rose 2% in the first four months of 2022, crossing 5% for the first time since 2011. That 2% jump caused the monthly cost of financing to increase 27%, so buyers rightly rushed to the market. As rates rose higher, the market cooled and home prices fell in large part to accommodate the higher cost of a mortgage. Both supply and demand were lower than normal in the second half of 2022. However, in 2023, demand started to rise again despite elevated mortgage rates, but it wasn’t met with the typical number of new listings because people either bought at a hyper-low rate in 2021 or refinanced at a low rate.
This year, the number of new listings has been significantly lower than usual compared to sales growth. Typically, inventory grows in the first half of the year as new listings significantly outpace sales. At this point, inventory levels can’t make up for low growth in the first five months of 2023, keeping the supply of homes and, in turn, sales depressed for the rest of the year. The limited number of listings is especially challenging in luxury markets where homes sell in the millions of dollars. Homebuyers, understandably, only want the right home for their money.
Median Home Prices San Francisco
Median Price Changes in San Francisco
