Last time around, I talked about declining inventory levels in the San Francisco home-buying market. In what’s normally the Spring peak home-buying season, supply had dropped over 50% yr-on-yr. The question everyone is asking is how will this impact house prices?
Firstly, let’s review the data, and then we can look at buyer & seller expectations and how they differ greatly as a consequence of the health crisis.
Here’s a current overview of SFH and Condo sales in San Francisco yr-on-yr:
SFH: March 2020 yr-on-yr listings fell from 242 to 108 – a 56% decrease
Condos: March 2020 yr-on-yr listings fell from 301 to 146 – a 51% decrease
SFH: Sold an average of 105.7% over asking in Apr-20 vs. 111.8% in Apr-19
Condos: Sold an average of 104.7% over asking in Apr-20 vs. 104.65% in Apr-19
SFH: Median sales price was $1,699,000 in Apr-20 vs. $1,612,500 in Apr-19
Condos: Median sales price was $1,300,000 in Apr-20 vs. $1,250,000 in Apr-19
Paradoxically, given we are in an unprecedented financial meltdown as a result of the pandemic, we’re faced with a NET INVENTORY CONSTRAINED housing market where there’s a shortage of inventory and still plenty of buyers. In short, we have PRICE STABILITY when we look at yr-on-yr median SFH/condo prices, SP % LP comparisons and DOM (Days On Market) data.
I will look into if this stability extends to all levels of the housing market, from entry-level to the upper Luxury market, in a later post. For now -generally speaking – house prices in San Francisco are not crumbling like employment levels or GDP. This is partly due to the speed of the decline during this pandemic – we have reached the same levels of decline in 7-8 weeks as it took 18 months in the last financial crisis of 2008/2009 – which could just as swiftly bounce back? Could the recovery be just as swift? A lot depends on how we come out of the current pandemic and if there will be another one down the road. Also, the economics this time round are very different, as the financial crisis was directly indexed to the housing market, how loans were being dished out, repackaged, and sold on with very little oversight which led to the financial crash and subsequent decline in house prices.
So there are some fundamental structural and financial differences between then and now which can partly explain why house prices have not fallen … yet. What’s just as interesting, is the expectation gap currently between buyers and sellers. In a recent CAR study, 80% of potential buyers are expecting prices to drop, while only 27% of sellers reduced their price to attract buyers. Sellers do not anticipate needing to discount their properties while buyers are expecting deals. The data suggests that, at the moment, the sellers are correct.
So why is this good news? It’s good in that the long-term security of owning a home still looks like a good bet here in San Francisco. As long as you buy well, your investment will be a sound one. And remember, today’s buyers are tomorrow sellers and vice versa so the long term outlook is good for all. We will find out in the coming months how the short to medium term pans out.