For those active in San Francisco's housing market, 2023 will broadly be remembered as the year of the deep freeze.
Interest rates rose to the point that borrowing became nigh impossible for many buyers and sellers. As a result, the number of new home listings in the San Francisco Bay Area fell to its lowest point in nearly two decades, down 25% from the year prior, according to a market analysis by residential real estate firm Compass.
Correspondingly, the number of sales also fell 24% from the year prior, registering numbers not seen since the Great Recession.
The good news for San Francisco buyers—less so for local homeowners seeing the highest number of homes selling for a loss in the country—is that economic forces drew listing prices down across the board.
Compass research revealed that the annual median sales prices for single-family homes in most San Francisco neighborhoods dropped back to pre-pandemic levels in 2023 after soaring to record highs during the two years prior.
For reference, the median sales price for a single-family home in San Francisco came in at $1.57 million last year, paling in comparison to the $1.8 million in 2022 and the lowest number since 2017’s $1.42 million figure.
San Francisco Realtor District 1, which includes northwestern neighborhoods like the Richmond and Sea Cliff, saw among the steepest year-over-year declines, with average sales prices falling about $200,000 in 2023.
In contrast, the only real estate district in San Francisco where prices actually rose included Pacific Heights, Cow Hollow and the Marina, where sales prices ticked up 2% compared with 2022. The average price of a single home in that area was more than $5 million.
Condos, which make up most of the available housing stock in the city, have also seen median prices drop even further to 2017 levels in neighborhoods like SoMa, the Mission and the Dogpatch. However, areas like Hayes Valley, Alamo Square or Western Addition are holding relatively steady year over year.
In 2021, a record number of luxury homes priced above $5 million sold in San Francisco, with nearly 200 changing hands. Fast-forward to today, that activity has slowed significantly, down 54% compared with 2021 and 23% from 2022.
Looking Ahead to 2024
If last year in the housing market was a deep freeze, then experts project this year to be akin to a cooler-than-usual spring thaw—meaning no immediate reversal of trend lines.
Investors and buyers will be encouraged by the Federal Reserve, which signaled publicly last month that interest rate cuts are coming this year.
If they do come down, then that would lower the cost of new mortgages. But don’t expect a drastic cut any time soon. Minutes from a recent Fed meeting indicated that officials won’t start cutting by March, as many had initially hoped.
“They’re not willing to say, ‘We’ve won,’” David Kelly, chief global strategist at J.P. Morgan Asset Management told the Financial Times of the Fed’s ongoing battle against inflation.
Mortgage rates climbed to nearly 8% last year. By the end of 2024, most industry experts project that number to land somewhere between 6% to 7%.
Some quick math: On a $1 million, 30-year fixed loan with an 8% rate, the monthly mortgage payment would come out to just over $7,300. If we were to apply Realtor.com’s projected year-end 6.5% to that loan today, that payment would only drop to $6,300.
For reference, most homeowners who purchased their homes before the interest rate hike of 2022 and 2023 have rates under 5%.
Regardless of rates, experts anticipate that prices will continue to fall, continuing the trend of last year.
Real estate brokerage Zillow’s data model forecasts that the typical home price in San Francisco of $1.2 million today (combining both single-family homes and condos) will continue to fall by 4.8% over the next 12 months, landing at around $1.1 million, the lowest figure the city has seen since 2019.
Out of the top 50 metro areas analyzed by Zillow, San Francisco ranked third in the list of steepest pricing declines. In first place is San Jose, which is expected to see home prices fall by 6.1% to $1.46 million.