Spring is sparking signs of life in the Bay Area housing market after a dismal end to 2022.
Buyer demand has rebounded and market indicators, including days on the market and the number of offers coming in above list prices, have turned positive in the first few months of the year, according to a report from Compass.
“Something has woken up in buyer’s hearts. Suddenly, they’re starting to come back to open houses, and they’re competing for listings and overbidding,” said Patrick Carlisle, a Bay Area market analyst for Compass.
Part of the sales rebound has to do with general seasonality in the home-buying market, which typically goes into dormancy in the winter before emerging out of hibernation a few months later.
Where the recovery has been particularly pronounced is in the ultra-luxury home segment, categorized as homes over $5 million. Across the Bay Area, there were 39 sales priced at or above $5 million in February, compared with 28 in January and 30 in December.
“In many counties, the market hit a historic nadir at the end of last year’s fall season,” Carlisle said.
However, year-over-year numbers, particularly around pricing, are still in the red. The three-month rolling median sales price for single-family homes in San Francisco was $1.5 million in February, down 14.5% compared with the same period last year.
Those aren’t expected to turn around soon, in large part because the market peaked last spring and early summer.
Much of the dramatic decline in the market during the second half of last year is attributed to shifting macroeconomic factors, namely high-interest rates that directly translated to more expensive mortgages.
That led to a strong pullback from interested buyers recalculating major purchasing decisions.
Now the dynamic has somewhat reversed, with sellers more reticent to put their homes on the market while buyers are getting used to the macroeconomic conditions. Carlisle said he’s heard many sellers are instead deciding to rent out their properties if they can afford to do so.
“Six months ago, it was an utter shock that interest rates had gone from 3% to 6%. But time goes by, and people adjust,” Carlisle said. He cautioned that it’s still early days and sharp interest rate hikes could throw a wrench in any recovery.
The percentage of listings accepting offers sharply jumped to 38%, the highest level since last March, a sign of pent-up buyer demand.
One area that remains depressed is the number of new listings coming into the Bay Area market, which is at its lowest level in more than two decades. San Francisco remains a bit of an outlier in this respect, as it saw listings drop dramatically at the beginning of the pandemic.
Carlisle used the metaphor of an earthquake to explain the current dynamics in the market. In geology, pressure buildings on fault lines until something slips and the situation changes.
“That happens in real estate, too,” Carlisle said. “A lot of people held off from buying last year, but that doesn’t mean the pressure didn’t keep building, then a positive development happens, the fault moves and the market shifts.”
Kevin Truong can be reached at [email protected]