Main Highlights

• For the first time this year, San Francisco as a whole witnessed a dip in home prices by 1.05% month over month, aligning with the typical trend of prices rising in the first half and contracting in the latter half of the year. Important to note; 3 in 5 properties aren't selling.
• August saw the average 30-year-mortgage rate soar to its highest since June 2021, standing at 7.23%. This has played a significant role in the dwindling new inventory and the decrease in sales, which has been on a decline for five consecutive months.
• While sellers still have an edge in the housing market, there's a noticeable shift towards equilibrium as demand wanes and inventory begins to recover.

In-Depth Analysis

The recent spike in the 30-year mortgage rate, reaching a 22-year peak in August, combined with the usual summer sales dip and an increase in inventory, has led to a month-over-month decline in prices from the 2023 peak in June. The National Association of Realtors (NAR) data indicates a 1% drop in the median home sale price in the U.S. Furthermore, Realtor.com data shows a similar 1% decrease in the median list price per square foot.

However, the drop in sales is more pronounced. NAR data reveals a 2.2% month-over-month and a significant 16.6% year-over-year decrease in home sales. This decline is not entirely surprising, given that home sales in 2020 and 2021 were at their peak since the 2006 housing bubble burst. The historic seasonal trends, which saw a rise in home prices and inventory in the first half of the year followed by a decline in the latter half, seem to be returning.

In terms of inventory, while it has been on the rise since March, it remains historically low. Compared to sales, the growth in inventory has been more pronounced. Year-to-date, inventory has surged by 15.6%, while sales have only seen a meager 1.0% increase. With sales typically declining in the latter half of the year, 2023 might witness the lowest number of homes sold in recent times. This decline in sales, coupled with the rise in inventory, is pushing the market towards a more balanced state.

Local Insights

San Francisco's median prices have been on a downward trajectory for the past 16 months. However, the impact of this decline is offset by the rising rates, which means homes remain equally or more expensive even after a significant price drop.

In San Francisco, the high demand for housing is consistently met with a lack of inventory. The surge in mortgage rates has deterred sellers from entering the market, leading to a significant price drop from the peak in March 2022. Interestingly, even with a 27% price drop from the peak, the monthly mortgage cost remains unchanged due to the high rates.

Inventory in San Francisco has been following typical seasonal patterns, albeit at a much lower level. The number of new listings has seen a sharp decline in the summer months, directly impacting both inventory and sales. As demand starts to wane, buyers are slowly gaining an upper hand, paying slightly below the asking price on average.

The Months of Supply Inventory (MSI) provides a measure of the supply-demand relationship. A balanced market in California typically has an MSI of around three months. Currently, San Francisco's market is leaning towards sellers for single-family homes, as indicated by its low MSI. However, recent months have seen a shift towards a more balanced market for single-family homes, while the condo market is more buyer-centric.

Conclusion

San Francisco's housing market, which was blazing hot from 2020 to 2022, has now entered a phase of equilibrium. The market is neither too hot nor too cold but is moving at a slower pace. Different regions and individual properties might deviate from these broad trends, but the overall market is showing signs of stabilization. As always, it's crucial to keep an eye on the housing and economic markets to make informed decisions about buying or selling a home.

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