San Francisco October '24 Real Estate Update Ascend RE

The Local Lowdown

Quick Take:

The median single-family home price rose 7.2% month over month, while condo prices increased 11.6%. We expect price contraction for the rest of the year, which is the seasonal norm.
Total inventory rose 37.1% month over month, as new listings spiked, which is actually common in September for San Francisco. We expect inventory to decline and the overall market to slow in the fourth quarter.
Months of Supply Inventory declined significantly from May to August, a sign that the market is improving for sellers, but rose in September. Currently, MSI remains under three months of supply for single-family homes, indicating it’s still a sellers’ market, while condo MSI continues to indicate a buyers’ market.

Median home prices declined month over month but are still near all-time highs

In San Francisco, home prices haven’t been largely affected by rising mortgage rates after the initial period of price correction from April 2022 to August 2022. Since August 2022, the median single-family home and condo prices have hovered around $1.6 million and $1.1 million, respectively. Year over year, the median price was up 3% for single-family homes and 8% for condos. Prices are more likely to rise if more sellers come to the market, which happened in September. Inventory is so low that rising supply only increases prices as buyers are better able to find the best match. More homes must come to the market to get anything close to a healthy market.

High mortgage rates soften both supply and demand, but home buyers and sellers seemed to tolerate rates near 6% much more than around 7%. Now that rates are declining, sales could get a little boost, but the housing market typically slows in the fourth quarter of any year.

New listings spiked in September, causing inventory to rise

In September, sales fell, while new listings surged, nearly doubling month over month, which is actually normal for this time of year. In San Francisco, a significant amount of new listings tend to hit the market in January and September in any given year. Compared to this time last year, new listings are even and inventory is down 10%. Year over year, sales are up 1% for single-family homes, but are down 13% for condos. San Francisco is somewhat unique in that mortgage rates really have brought prices down, so the typical supply-and-demand dynamics don’t really present as well in terms of price in recent history. Single-family home prices peaked at $2.05 million in April 2022 as mortgage rates were rising rapidly; $2 million homes are simply far more affordable with a 4-5% mortgage than a 6-7% mortgage. Because of the relatively high prices of homes in San Francisco, prices had to come down to keep buyers in the market.

Total inventory has trended lower essentially since 2010, but active listings fell precipitously from October 2020 to December 2021, as sales outpaced new listings, before stabilizing to a degree from January 2022 to the present at a depressed level. Low inventory and new listings, coupled with high mortgage rates, have led to a substantial drop in sales and a generally slower housing market. Typically, inventory begins to increase in January or February, peaking in July or August before declining once again from the summer months to the winter. In 2023, sales didn’t resemble the typical seasonal inventory peaks and valleys. It’s looking like 2024 inventory, sales, and new listings will follow historically seasonal patterns, albeit at a depressed level. It’s clear that supply will remain tight until spring 2025 at the earliest.

Months of Supply Inventory in September 2024 indicated a sellers’ market for single-family homes and a buyers’ market for condos

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). The San Francisco housing market tends to favor sellers, which is reflected in its low MSI, especially for single-family homes. MSI has been below three months since October 2023 for single-family homes. From May to August, MSI declined meaningfully. In September, however, MSI jumped significantly higher as new listings spiked. Recently, condo MSI indicated a buyers’ market in September, while single-family home MSI still implied a sellers’ market.

The Bottom Line

The 2024 housing market is correcting, with home prices peaking in June and following a typical seasonal cycle. Sales remain low despite improved affordability due to declining mortgage rates, and inventory has reached its highest level since 2020. High mortgage rates have reduced both supply and demand, but limited inventory supports prices. The market is still a seller's market for single-family homes, while condos favor buyers. Looking ahead to 2025, declining rates and high inventory could fuel a stronger spring market. If you’d like to discuss listing your home in the Spring or getting pre-approved, we’re here to help.