At the beginning of any real estate market shift, we see inconsistent deals happen. One listing will sell for over 30% of its list price, while another seemingly similar one will receive no offers at all. That’s because odd deals are typical of a changing market, which is what we are most certainly in. While these charts are local to San Francisco, we’re seeing similar trends happening in every market in the country.
Year over year we’ve only seen a 3% increase in listings compared to May of 2021, but the rest of the charts reveal the real inflection points that mark the beginning of a market shift.
To no one’s surprise, the number of active listings on any given day in the month of May 2022 was up 23% compared to the same time in 2021. It’s not because there are that many more listings coming on the market. It is primarily due to the absorption rate of the active listings being so slow compared to what we had been experiencing when you listed a property and 5 to 10 days later it was in contract.
The notable thing here is the fact that inventory is building — not that there are so many more listings than in any normal year. That is important to pay attention to if you are a buyer because we still have a lack of overall inventory nationally due to the much reported underbuilding.
Unsold inventory in San Francisco is weighted very heavily in condo inventory (making up 73% of unsold current listings), but Bay Area trends as a whole and nationally are all showing unsold inventory increasing.
Higher priced homes over $2,000,000 have held up and actually increased sales so far, but it remains to be seen if that will continue.
The chart below is the big TELL for the market shifting. Price reductions are up 50% and this trend is being mirrored in every major city in the United States. Declining appreciation does not always correlate to declining prices, although it might. There’s the chance appreciation simply flattens or we may see a decline in actual prices. In typical pull back cycles, we usually see in the range of 5-10% of declines. The Great Recession/housing bubble, however, was an outlier but the market conditions are dramatically different than they were 14 years ago.
The Takeaway
We know no one can predict an absolute bottom or top of a market but if you’re interested in my best guess, refer back to my post of two weeks ago. The realities are as the market cools, buyers become more discerning and we experience a shift from buyers competing for listings to sellers competing for buyers, something that usually comes in the form of price reductions. Changing inventory levels and more price reductions are what you can expect to increase throughout the summer months, but any decline in appreciation or pricing statistics will likely not show up in their true versions until July or August when the current on market now deals start to close. So if you’re a seller, don’t be lulled by the fact those numbers are not showing up yet. They will once these current listings start closing. Look at the trends, not the one-off sale that just closed for 30% over its list price.
We’re also experiencing no sense of urgency where buyers are concerned, and the consensus is most are distracted by the 25% increase in weddings or just getting out to travel after so many lockdowns, not to mention their belief the market is just at the beginning of a shift. If you’ve been in the market to buy, with fewer buyers out looking over the summer and everyone feeling the heat from the economic signals, it may prove an opportune time to bargain hunt, just saying.
For my sellers, as they know because we’ve been discussing it at length, unless they’re sitting on a ton of equity from years of ownership or have plans for that money that is time sensitive (like buying up), I’m suggesting considering waiting until spring of next year when historically prices increase and some of these economic signals work their way through.
If you care to workshop your current real estate scenario, feel free to give me a call, text, email. You know where to find me!
