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Buyers’ market? Real estate sellers slash prices as SF market cools

Laila Salma of Salma & Company adjust a frame inside the company’s Pacific Heights listing, while her twin sister and business partner, Rhanda Salma watches, in San Francisco, Calif. on Friday, July 8, 2022. | Juliana Yamada/The Standard

After one of the longest and most dramatic upswings in recent history, San Francisco’s residential real estate market is starting to show signs of a correction—and a transition to a new balance of power. 

Driven in part by fears of an impending recession, stock market volatility and federal interest rate hikes, signs of white-hot buyer demand—like a flood of offers for available properties and bidding wars—are starting to slow.

That has led to a glut of homes on the market, and more price reductions from sellers looking to offload. According to a June report by Compass, year-over-year appreciation rates for single-family homes in San Francisco turned negative in June for the first time since the beginning of the pandemic. 

“When a market starts to cool off or transition it can happen quite abruptly, at least here in San Francisco,” said Danielle Lazier, a real estate broker who has been working in the city for two decades. “Certain property types and certain locations have seen their value roll back to pre-pandemic levels.”

Sellers out of luck

Lazier said a significant number of listings were pulled off the market in recent weeks that were originally listed early this year, when price points were still near their peak. 

Homeowners looking to cash in on the overheated market, by selling a home acquired in recent years at a tidy profit, may now be out of luck. 

According to the data from Compass, new listings in June were down 10% from a year prior. At the same time, the number of properties rose as the pace of sales has slowed: There were 26% more active listings in June compared to last year. 

“The problem sellers are the ones who haven’t owned their home very long," Lazier said. “The values are now back to where they paid for them, in some cases even lower.”

Buyers step in

Laila Salma, a real estate agent with Salma & Company, she’s been calling all the buyers who gave up looking for a home to suggest they renew their search.

At the top of the market, it wasn’t uncommon for properties to close a sale within days or receive a few dozen competitive offers. Those dynamics frustrated many prospective buyers, but the tide may be turning. 

Pedestrians stroll through Pacific Heights District of San Francisco, Calif., overlooking the Marina District, on Friday, July 8, 2022. | Juliana Yamada/The Standard

“It's actually a huge opportunity right now for buyers to get into the market. There's still a lot of good product out there,” Salma said.

Price reductions for San Francisco properties have steadily increased, with 316 price reductions in June compared to half that the year prior. 

No more games

Both the pace and volume of home sales have slowed: Monthly sales volume was down 32% in June compared to last year.  

At the peak of the market, one trend for properties seeing positive initial early feedback was to light the fuse for a bidding war by setting a public deadline for accepting offers. 

“ You want to get everyone in the party to the table at the same time,” Salma said. “Today, right now, you’re not really seeing that very much.”

Sellers have grown more conservative, Salma said, taking offers as they come and keeping their timelines hidden from public view as competition wanes. 

Strategic underpricing—which Lazier called “endemic” to the San Francisco market—existed long before the pandemic and will continue once it’s over. But in a slowdown, the gap between listing price and what a home eventually sells for will narrow. 

Case in point: the gap between sales and listing prices has dropped since peaking in April. For single-family homes, the decline was 6.5% and for condos, the number was 2.6%.

House vs. condo divide 

While single-family home values generally increased in value during the pandemic, condos haven’t fared so well.  

“In the early days of the pandemic if the condo didn’t have any outdoor space, it’s almost like you couldn’t sell it,” Salma said. “Things are a little less scary now, but that need to be in close proximity to outdoor space is still persisting and affecting rental and sales values.”

Laila Salma of Salma & Company checks on the company’s Pacific Heights listing in San Francisco, Calif. on Friday, July 8, 2022. | Juliana Yamada/The Standard

Rising interest rates also have a greater impact on condo sales. With a median sales price of $1.3 million, condos are a downright bargain compared to the $1.89 million median sales price for single-family homes. 

The typical condo buyer is more reliant on financing to purchase their home, and that brings more sensitivity to price fluctuations and changing mortgage rates. 

The pandemic also “changed how buyers view condos and that type of lifestyle,” Salma added. 

According to neighborhood-specific data provided by Compass, properties in the district that includes South Beach, SoMa, Mission Bay and Yerba Buena sat on the market for longer than any other district before selling.

Homes in that downtown district also sold for less than their asking price, in contrast to every other area of the city.