4th Quarter sales among the lowest in years

While the number of San Francisco residential sales in the 2021 4th quarter was one of the highest in years it appears the this year’s 4th quarter will be among the lowest.  It’s already clear that this year’s 4th quarter will be the lowest of all four quarters in 2022.  Last year there were 1,879 closed sales in the 4^th quarter (801 single family homes and 1,078 condos/TICs).  This year so far (through December 5^th) there have been 804 closed sales (380 single family homes and 424 condos/TICs).

There are also currently 159 single family homes in contract and pending and 177 condos/TICs for a total of 336.

As mortgage rates climb competition has almost disappeared and negotiations have become commonplace, particularly over selling price.  Comparing average selling price during the first three quarters of 2022 for the five categories we survey monthly vs. the average selling price from October 1r 2/1 single family homes declined by 8%, 3/2 single family homes declined 14%, 1/1 condos by 8%, 2/1 condos by 6% and 2/2 condos by 8%.

Even with the normal inventory withdrawls and cancellation which we typically see following Thanksgiving, there is still plenty of inventory on the market:  5 weeks of single family home inventory and about 9 weeks of condo/TIC inventory.

Where are the buyers?

What a difference a year makes in the San Francisco real estate market.  2021 was the best year for total closed sales since 2004, including the fourth quarter.  The fourth quarter usually vies with the first quarter in a typical year for the fewest sales.  Yet in 2021 it turned out to be the second best quarter after our second quarter spring market.

The 2022 fourth quarter has started out very slowly.  The single family home segment is still showing demand but rising interest rates are affecting even that portion of the market with moderating final selling prices, disappearing offer dates, and fewer buyers overall.

The condo/TIC segment has seen an almost 25% drop in closed sales compared to 2021 with falling average selling prices, increasing days on market, price reductions, and withdrawals.  Available inventory remains almost three months.  Most of us would call this a “buyer’s market” which hasn’t been part of our vocabulary since 2010.

Single family homes average selling prices remain at historic highs for properties priced below $2.5 million, but there are signs of downward moderation.  For the 1/1, 2/1, and 2/2 condos we survey average selling prices are down by 6%, 2%, and 3% compared to previous historic highs established in 2019.

The numbers indicate a slowdown is here.  Sellers are slowly adjusting to that realization.

Has sanity returned to the San Francisco residential real estate marketplace?

 

September ends a very slow third quarter for closed residential sales.  There were 1,815 single family homes that closed and 2,466 condos/TICs.  Compared to the third quarter of 2021 single family home closed sales declined 15%, condos/TICs declined 25% and total combined residential sales declined 21%.

Inventory continues to build following the Labor Day holiday weekend as it does most years.  Single family homes have an inventory of about two months supply and condos/TICs show an almost three month supply.  Of the 432 currently active single family homes 138 of them, almost 32%, are priced at or above $2.5 million.

Average selling prices continue to moderate downward.  While single family homes remain at historic highs they have been declining in recent months.  Days on market are increasing and overbidding is declining.  All of which means lower average selling prices.  And, as we approach the 7% mortgage interest rate level, this will probably dampen sales even further.

Active buyers are finding plenty of available inventory.  Competition has dwindled and, in many cases, disappeared.  Negotiating is back on the table.  DOM continue to increase.  While some overbidding continues in a few “pockets of popularity”, offer dates have largely disappeared and the few we’ve seen have not succeeded in generating accepted offers.

Post Labor Day

 The post Labor Day residential real estate market opened with a bang.  In the past seven days 398 new homes were added to our inventory – 126 single family homes and 272 condos/TICs.  Including these new additions, single family homes now represent about 1.5 months of available inventory and condos/TICs  2.5 months. 

It appears closed sales are still lagging behind the first eight months of 2021 sales by almost 20%.  Single family homes are 14% behind and condos/TICs are behind 24% compared to the same eight month period last year.

Average selling prices remain at historic highs for single family homes priced under $2.75 million.  However the overall market is showing signs of average sales prices moderating downward.  In particular, condos/TICs have declined 4-6% compared to the historic highs reached in 2019 for the three configurations we survey.

When you factor in another fed rate increase of as much as 100 basis points coming soon, interest rates could reach the 6% range going into the fourth quarter.  As our old broker used to say “the market is the market” – you either learn how to work it to your client’s advantage or complain to anyone who will listen how bad it is.

Taking Stock of the Post Labor Day Market

 The San Francisco residential real estate market remains quite active even though new inventory coming onto the market has slowed to numbers we usually don’t see until December.  There remains about four weeks of available single family home inventory as of 9/5/22 and condos/TIC inventory about eight weeks.  In addition there are 84 single family homes and 154 condos/TICs in the “coming soon” category.

Comparing closed sales for the first eight months of this year vs 2021 single family homes have declined by 14% and condos/TICs declined by 24%.  Overall residential sales declined by 20%.

Historic high average selling prices remain for single family homes priced below $2.75 million.  However, the condos/TICs segment has moderated.  For 1/1, 2/1 and 2/2 configurations* we survey each remains off their historic highs established in 2019.  1/1’s have gone from $871k to $824k,  2/1’s from $1,174k to $1,168k, and 2/2's from $1,463k to $1,429k (-5.4%, -0.6%. and -2.3% respectively).

This new market has much to offer for buyers and sellers.  Inventory remains relatively stable and consistent – 1 month for single family homes and 2 months for condos/TICs.  Rising interest rates typically means less competition and generally selling prices closer to list prices with offers that contain more conditions and more back and forth negotiations.

Also of note, in the last two months there has been an unusually large number of listings that have been withdrawn particularly in the $1million-$1.5million price range.

 

*bedrooms/baths

First six months 2022 vs 2021

The number of San Francisco residential closed sales, including single family homes and condos/TICs, for the first six months of 2022 are down 17% compared to the first six months of last year (2021).  Single family homes are down by 11% and condos/TICs are down by 22%

Reviewing the five configurations we survey monthly 2/1 (bedrooms/bathrooms) and 3/2 single family homes had an increase of 7% for 2/1s and a 4% decrease.  Of the 1/1, 2/1 and 2/2 condos/TICs it’s quite a different story.  1/1s are down 23%, 2/1s are down 36% and 2/2s are down 16%.

At the same time the average selling price shows an increase in all five categories we survey.  2/1 single family homes are up 6%, 3/2 single family homes are up 10%.  For all single family homes regardless of configuration that closed in the first six months are up 1% on average.  Condos/TICs also saw increases in average selling prices for every configuration we survey, 1/1, 2/1 and 2/2 increased by 2%, 2% and 5% respectively.

Inventory continues to increase as is normal for this time of year.  There is approximately 5 weeks of single family homes currently available and 11 weeks for condos/TICs. 

These statistics are based on MLS listings.  New construction units are generally not included (except for sample units) so available inventory of condos is more likely to be in the 3-4 month range.

In our 24 years of keeping stats on SF real estate there has never been this high a number of available condo/TIC units.

Reviewing First Five Months of 2022

The number of San Francisco residential closed sales through May 31 of this year shows a decline of 15% with single family homes down 7% and condos/TICs down 19% when compared to the first five months 2021.  (2021 was the best year for total sales since 2004).

Demand for single family homes remains strong and average selling prices remain at historic highs for 2bed/1bath and 3bed/2bath configurations we survey monthly.  In the last three months each configuration has shown a decline in the average selling prices – 2/1s by 5% and 3/2s by 12%.

For the three configurations we survey of condos/TICs, 1/1s are down 9%, 2/1s down 7% and 2/2s down 9% over the last three months.

As of 6/6/22 there is approx. 6 weeks of available inventory for all single family homes and about 11 weeks for all condos/TICs.

Much of the decline in selling prices could be anticipated given the number of available properties.  For example, our condo/TIC inventory has reached about 11 weeks which does not include new construction inventory which is not usually listed in the MLS.

However, average sales prices for single family homes become less predictable even as the inventory increases.  It could be the decline in average selling prices may be the result of rising interest rates or, perhaps, buyers’ agents are advising against making aggressive offers.

34% of single family homes that closed this year through 5/31/22 sold at or above $2.5 million.  4% closed at or below $1 million.  15% of the condo/TICs closed at or above $2 million while 35% closed at or below $1 million.

Inventory may be low but sales continue to boom

As buyers agents we're routinely bemoaning the lack of inventory.  But sometimes it's worth taking a high level view of sales.

By most measurers, last year (2021) was a boom year for residential sales in San Francisco with over 7,300 units changing hands -- the highest number we've recorded in the 16 years we've been keeping records.  The prior three years (2018-2020) total sales were in the 5,200-5,300 range, 28% below 2021.

To get a closer perspective on how we're doing so far this year here is a graph comparing the first four months of 2022 to the same period for previous years.

With the exception of 2021, the first four months this year have seen more sales than any of the years back to 2006.  Climate change (earlier spring market)?  Afraid of missing out on historically low interest rates?

Will this trend last for the rest of the year?

Inventory Increases, Sales Lag, Price Reductions Increase

Historically the end of April and May produces the largest numbers of new residential home inventory coming onto our market and this year has been no exception.  But compared to a comparable 14-day period a year ago new single family homes are down by 22% (47) while condos/TICs are down by 8% (28 homes).

https://boldsf.blogspot.com/2022/05/inventory-increases-sales-lag-price.html

As of May 15 we have about four weeks of available inventory for single family homes and 11 weeks for condos/TICs.

http://www.boldsf.com/Statistics%20test/Statistics%20reports/2022/04-2022/San%20Francisco%20Fundamentals%202022-combined.pdf

Total sales continue to lag behind last year which was our best year since 2004 in the number of closed sales.  Single family homes are down 11% and condos/TICs by almost 20% as of the end of April.

As telling, are the number of price reductions in the last two weeks.  Single family homes saw 32 price reductions and condos/TICs saw 146 price reductions.

With that being said it must be pointed out that as of May 15th there are 126 homes in contract (28 single family homes and 98 condos/TICs).  Also there are 492 homes pending (230 single family homes and 262 condos/TICs).  That's almost an entire month of average closings.  So demand seems to remain strong and consistent.

 

Month-to-month Fundamentals

Each month we prepare a one-page "fundamentals" report, one each for San Francisco, Marin and Sonoma.  Here are some highlights for Marin and San Francisco:

Marin Fundamentals – March sales were up substantially compared to last month 163 to 100 (single family homes) and 54 to 46 (condos).

Average selling prices were up $2,002 compared to $1,952 for single family homes but, as you can see, that increase was not uniform across all configurations.  Same with condos:  with average selling price $897 vs $859 a month ago.

Inventory has increased 126 compared to 96 at the beginning of February (single family homes) and 63 compared to 57 (condos).

 

San Francisco Fundamentals – the number of sales and average selling prices were up with a one exception.  Sales increased slightly for single family homes 239 vs 236 a month ago.  For condos sales increased substantially 367 vs 236 (55%).  Average sales prices have increased for single family homes ($2467 vs $2335 – 6%) and condos ($1,417 vs $1,377 – 3%).  The average premium (selling price / asking price) for single family homes is            117% for single family homes) and 106% for condos (about the same as last month).

Annual average sales prices are at record highs for the two categories of single family homes we track.  The largest condo configuration we track (2/2) is also back at all time highs with 2/1 condos on $35k off its all time high (2019).  Smaller condos like the 1/1 configuration are recovering more slowly.

Days-on-market have decreased across the board.

Inventory of single family homes is flat (203 vs 204) but condo inventory has jumped 10% to 734 vs 662 a month ago.

 

First Quarter 2022

We just completed our monthly reports and first quarter 2022 reports and have several observations.

[Reports page link]

SAN FRANCISCO

In San Francisco, 2021 recorded the highest number of residential sales since 2004 including single family homes and condos/TICs.  However, for the first quarter this year compared to 2021 first quarter there has been a decline of 17% in closed sales.  Single family homes fell about 12% and condos/TICs fell about 21% in the same first quarter comparison.

[San Francisco quarterly link]

At the same time the average selling prices for single family homes increased by 7% while condos/TICs were down by almost 2%.

Is scarcity driving up prices?  For single family homes this obviously has been true.  As of April 4 there was only 3 weeks of available inventory (number of available properties divided by the average number of monthly sales).  On the other hand, condos/TICs were a surprise as inventory has been hovering between 2 and 3 months.

Both 2 bedroom/1 bath and 3 bedroom/2 bath single family homes continue to establish new historic high average selling prices almost every month.  And 2/2 condos have returned to historic high prices after a downturn during the two years following the start of the pandemic.

And 1/1 and 2/1 condos have also seen recent upticks in recent selling prices but are still 3% off their previous high reached in 2019.

 

MARIN

Total residential sales (including single family homes and condos) for the first quarter of this year compared to 2021 first quarter show a drop of 18% for all sales with single family homes falling 17% and condos falling 19%.  At the same time average selling prices for Marin County residential sales were up 6% with single family homes up 3% and condos up 16%.

[Marin quarterly link]

As of 4/4/22 Marin has almost three weeks of available inventory of single family homes and four weeks of available inventory of condos. 

Monthly Review and Clues to the Remainder of the Year

 

Some notes from our recent monthly reports and our weekly 3-county report

·         3-county report

o   There are fewer active listings of single family homes in both Marin and San Francisco than there are homes that are “pending” (already in contract).  Same situation last month.  While this happens sporadically, it's unusual for it to happen two months in a row and seems be a symptom of low inventory and climbing interest rates.

o   Inventory is trending up slightly compared to a week ago for single family homes in all three counties with condos down slightly in both Marin and San Francisco

o   But compared to a year ago numbers are down across the board.  San Francisco down approx. 15%; Marin down 40% in single family homes and down 35% in condos. 

·         Fundamentals:

o   San Francisco number of sales of single family homes is down compared to January (22 vs 28) but overall number of sales was higher in February than January, as expected.

o   San Francisco average selling prices are generally up compared to the previous month, with 3/2 homes essentially flat. However, compared to a year ago average selling prices for single family homes are down 19% and average selling prices for condos is up slightly 2%.

o   San Francisco DOM is down substantially across the board and premiums are up

o   Marin number of sales of single family homes is up, as expected.

o   Marin average selling prices are down slightly overall for both single family homes and condos with the notable exception of 3/2, 3/3 and 4/4 configurations.  Compared to a year ago average selling prices for single family homes are down by 6% but condos are up by almost 10%.

o   Marin DOM is down significantly overall and premiums are up.

·         So, overall, month-to-month inventory numbers are following typical trends for this time of year but, again, compared to a year ago volume is down.

Market Summary

The San Francisco residential real estate market remains strong.  Following up on 2021 where total residential sales were the best since 2004.  7304 (2021) vs 7403 (2004). 

After a rather soft January, February saw a resumption in sales of single family homes with very low available inventory, strong demand, usually multiple offers, and average DOM of 14 days and premium (selling price divided by list price) of 126%.  Average selling price for 2/1 and 3/2 single family homes in February were $1.395 million and $1.8 million respectively.

Here's a graph showing the number of San Francisco residential sales in the last four years broken down into the first two months of the year and the last 10 months.

What is somewhat unexpected was the condo/TIC segment of our market where inventory came back very strong with almost 2 months of supply.  Demand has also increased as have month-to-month increases in selling prices as seen in the three configurations we survey (1 bedroom/1 bath; 2 bedroom/1 bath; 2 bedroom/2 bath).  

Of special note are 2/2 condos which are setting historic highs for average selling prices.  1/1 condos also saw an increase in February to $828k surpassing last year’s average selling price of $823k but lagging behind $871k set in 2019.

Other items of note:  

The number of pending* sales of single family homes is more than the the number of currently active inventory (222 vs 207).

There are 280 condos/TICs pending vs 659 active.

Comparing the last 14 days reporting period to the same time last year, both single family homes and condos/TICs show a 10% increase in new listings.

March closed sales for 2021 at 257 single family homes and 440 condos/TICs for a total of 697.  Closed sales for this March will be predictive for the remainder of 2022.