June 2022 Market Update
The spring market of 2022 was similar to 2021 in that demand far exceeded supply and buyers were out in full force with offers in hand. In the past few weeks, however, economic conditions have started to have an impact - both in the material loss of buying power and in buyer sentiment about the market.
After two years of record-setting activity, there are signs the housing market might be cooling. High home prices and a surge in mortgage interest rates are slowing buyer activity, with home sales declining for the third consecutive month (nationally) under the weight of soaring homeownership costs. Economists predict sales will continue to soften in the near future, which may put downward pressure on home prices.
Currently the homes that are selling are still typically selling quickly for well over asking. However instead of going 100 miles per hour, we may be slowing down to 65 MPH which feels a lot slower, but cannot reasonably be described as slow. People will continue to have excellent personal and financial reasons to buy and sell homes.
As of late spring, across the Bay Area, less expensive home sales have been considerably impacted by rising interest rates and this certainly occurred in San Francisco, particularly in the condo market. Sales of higher price homes (mostly SFHs) have held up much better, but cooling demand is beginning to show up in pending sale data. (Affluent buyers tend to be more affected by financial markets, which became very volatile last month and in June)
Market changes are often uneven in the early months of a transition, with one home selling in days at well over list price, while next door, the seller has to reduce their price to get an offer. As markets cool, buyers become more discriminating; negative conditions previously ignored are noticed; more negotiation occurs; multiple offers and over bidding decline. Listings that are well prepared, show well, and priced right will have an increasing advantage. The high appreciation rates of the last 2 years will almost certainly start to decline (which is not the same thing as an imminent decline in prices).
San Francisco - May 2022 Statistics
(Note: Generally, the below stats lag shifting market trends)
The Median Sales Price was up 6.8% to $2,015,000 for single family homes but decreased 0.2%to $1,225,000 for Condo/TIC/Coop properties. Months Supply of Inventory decreased 32.0 percent for single family units and 15.9 percent for Condo/TIC/Coop units.
Fed Rate Hike / Mortgage Rates:
Over the last 50 years, mortgage rates have reached both peaks and valleys, from the high of 18% in the 1980s to today’s relatively low but increasing rates.
Last week’s inflation reading of 8.6% for the month of May was a 40-year high and the unexpected increase in consumer prices triggered a surge in interest rates across the board. As a result, the Federal Reserve raised interest rates by .75 basis points and mortgage rates jumped by more 50 percentage points, the largest one-week increase in Freddie Mac’s survey. According to BankRate.com, a 30-year fixed jumbo loan (common loan in SF) is now 5.91% (June 20, 2022). The Fed will also meet again in July and September with further rate increases expected.
Sources: Compass Market Stats, June 2022; Bankrate.com June 20, 2022; SFAR May, 2022 Market Report