Housing market forecast now that we are entering autumn

SAN FRANCISCO MARKET UPDATE

November 2020

This month, we discuss the state of the economy, COVID-19, and potential economic stimulus. We will also look at forecasts for the housing market now that we are entering autumn. Overall, and quite surprisingly, the housing market has shown significant price growth over the second quarter, showcasing the strength and stability of residential real estate. Year-over-year sales have also increased considerably through the summer months. As we enter autumn, we believe the housing market is positioned for continued growth in both sales and price appreciation. As the market changes, we will continue to provide the most up-to-date housing information to support your buying and selling decisions.

In this month’s newsletter, we cover the following:

Key Topics and Trends in October: More than half of those jobs lost in March and April have now been recovered, but hiring has slowed, and some large companies are announcing layoffs. In California, COVID-19 cases have been declining since mid-August, although the decline over the last month has been less pronounced. Plans for additional economic stimulus for individuals and small businesses remain uncertain.
October Housing Market Updates: Single-family home and condo/loft markets continue to diverge, as sustained oversupply is finally lowering median prices of condos and lofts.

Key News and Trends In October

Surprisingly, despite high rates of unemployment and an economic downturn, housing has held onto its value, particularly in the San Francisco Bay Area. Pandemic-induced economic impacts disproportionately affect workers without college degrees—individuals who were likely not in the housing market in the first place. And, as the Bay Area employs a high number of skilled workers with college degrees, its unemployment rate is lower than other areas of the United States, and its housing market is holding strong. Now, more than ever, the more highly skilled and educated a person is, the more likely they will be able to afford a home, especially with interest rate being so low.

As we enter autumn, we are uncertain when exactly more federal stimulus aid for individuals and businesses affected by COVID will come. The immediate risks to the housing market, however, are fairly low. The Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) reports that, for the most part, homeowners were able to continue their mortgage payments; however, renters struggled to pay rent. This should come as no surprise; only 6% of homeowners reported collecting unemployment by the end of June, while the percentage of renters collecting unemployment was more than double that.

Despite our struggling economy, the housing market has maintained its value, and homeowners have navigated this uncertain time well.

Housing Market Update for San Francisco

In September, single-family homes had the largest year-over-year gain of 2020, with a median home price of $1.68 million. Condo and loft prices finally saw the effects of excess supply, with the median dropping to $1.2 million.

Year-over-year, median single-family home prices were up 9%, while condos and lofts were down 9%.

Total inventory decreased slightly in September, as the number of homes under contract rose for both single-family homes and condos/lofts. Lack of supply compared to demand typically buoys San Francisco’s prices, and this is still the case for single-family homes.

The number of condos and lofts on the market, however, remains near its highest level since 2010. The drop in condo and loft prices lagged behind the run-up in supply, until recently. This makes sense, because the housing market needs time to find a new price based on the increased supply. The large supply of condos and lofts has successfully given buyers a greater opportunity to find the right home for them, which we can see by the number of homes going under contract. San Francisco has needed more supply for quite some time, so, even though the condo and loft market may have overcorrected, we are still seeing a reduction in inventory as sales increase and new listings decrease.

The Days on Market (DOM) trended down in September as buying activity increased. Demand in the area is picking back up, which is reducing the Months of Supply Inventory. In September, single-family homes under contract were up 41%, with contracts on condos and lofts up 21%, showing the high demand in the area.

We can look to Months of Supply Inventory (MSI)—the measure of how many months it would take for all current homes for sale on the market to sell at the current rate of sales—as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that buyers are dominating the market and there are relatively few sellers (a sellers’ market), while a higher MSI means there are more sellers than buyers (a buyers’ market). In September, the MSI for single-family homes decreased to 2.2, favoring sellers once again. The MSI for condos/lofts fell to 4.7, still favoring buyers even though there was high inventory. This is because the pace of sales also increased.

In summary, the high inventory levels have made the condo/loft market favor buyers. The single-family home market, however, once again favors sellers in San Francisco. Overall, the housing market has shown its resilience through the pandemic and remains one of the safest asset classes. As we digest seemingly endless stories on negative economic data, we are pleased to report that home ownership has offered a sense of stability.

Moving forward, we anticipate new listings to slow until excess inventory lowers. Home prices will likely remain stable, with no outsized gains or losses year-over-year. The fall/winter season tends to see a slowdown in activity, as well, although this year we may see a new trend since there may not be any seasonality as COVID keeps people at home.

I hope you found this info in this month’s newsletter helpful. Should you have any questions about the market, or wonder what home-improvement projects will give you the biggest bang for the buck, I am always just a cell phone call away: (415) 595-7661.

Cheers,