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San Francisco’s ‘crazed’ housing market is seeing a cooldown—but that doesn’t mean it’s becoming affordable

View of houses from Kite Hill on November 8, 2021. | Camille Cohen/The Standard

To hear it from Patrick Carlisle, the chief Bay Area market analyst for real estate firm Compass, the San Francisco housing market for most of last year—and the first few months of this one—has been “crazed and overheated.” 

Any casual observer would tend to agree, particularly with homes selling after a day or two on the market and dozens of offers coming in for a single property, leading to a majority of home sales in the city coming in above the asking price. But now there are signs of a slowdown kicked off by macroeconomic trends like financial market volatility and higher interest rates.

Where the impact of these forces have been particularly felt has been in condo sales, which, at a median sales price of $1.25 million compared to $1.95 million for single-family homes, could be called a bargain—at least in the local market. 

“Interest rate changes have a tendency to affect more ‘normal-priced homes’ because people in the market for those properties are less likely to have millions of dollars in their bank account,” Carlisle said. “All around the Bay Area, we’ve been waiting for that shoe to drop, and it finally has in the statistics.”

The current 30-year fixed mortgage interest rate, according to Freddie Mac, is at 5.23%, compared to just 2.96% one year ago. 

Compared to one year ago, overall home sales in May were down 8%. While single-family house sales were actually up 7%, the overall number was dragged down by condo, co-op and townhome sales ticking down 17%.   

Homes under $1.25 million saw the number of sales dip by 15% between May 2022 and May 2021, and homes between $1.25 million and $2 million saw a 14% decline, according to Compass. Home sales over $2 million, however, were actually up 14%.  

But questions about pricing are starting to spread to more expensive homes. A decline in demand—seen in the number of pending sales—is down across all price segments, a sign of hesitancy from buyers. That slowdown has led to around 1,200 listings currently on the market, an 11-year seasonal high.  

“Wealthier people have a tendency to have a whole lot more invested in stock markets and when stock markets get very volatile or see big declines, well that’s bound to start getting people nervous,” Carlisle said. “I’d expect that to start showing up in the actual sales data pretty soon.”

It could be time for a bit of a market correction after more than a decade straight of rising home prices and one of the strongest up cycles in recent memories. 

Carlisle doesn't foresee a Great Recession-style crash coming anytime soon, but says a correction could be in the cards, particularly if people rush to list their homes to take advantage of the high prices leading to a glut of properties for sale. 

Some factors to be on the lookout for if a real downtown manifests are a surge in price reductions, a drop in the number of listings getting multiple offers and a climb in the length of time it takes for a property to sell. The major smoke signal, according to Carlisle, is that year-over-year appreciation rates for properties will begin to fall.

“There is no way that these appreciation rates that we've seen in San Francisco and especially around the Bay Area can continue,” Carlisle said. “If prices continue to go up 20-30% every year, soon the only people that would be buying is Elon Musk and his close family.”