Watching the San Francisco housing market is like watching the first 20 minutes of a horror movie on repeat: Everything tells you disaster is about to strike, but the ax just never falls.
In 2015, the head economist for real estate site Realtor.com warned that the city’s home-price surge was “not sustainable” and fretted that a tech industry downturn could send markets plunging.
In 2016, the investment site Money Morning flagged San Francisco as one of six cities that “recovered from the recession too fast” and were thus “on the verge of a housing bubble.”
At a 2017 South Bay expo, anxious questioners pressed economist Lawrence Yun, demanding to know if a Bay Area housing bubble was about to burst. (Yun deflected.)
And in 2018, investment bank UBS named San Francisco the most overvalued home market in America, while Realtor.com (again!) proclaimed SF “on the brink of a housing bubble.” (Not clear whether this brink was related to the verge of two years previous.)
Investment blog Wolf Street has even cheerfully labeled SF one of the “most splendid housing bubbles” in the country several years running.
And yet, here we still are.
According to Multiple Listings Service, the database where real-estate agents record most offers and sales, the median price of a home sold in San Francisco has gone up every year for a decade without fail, from $723,800 in 2012 to $1.45 million in 2021.
Not even the pandemic could push back the tide. “It killed things for a month or two,” Matt Kreamer, economist for the real estate site Zillow, tells The Frisc. “But then everyone looked around and said, ‘Well the economy hasn’t tanked, so …’”
There have been slow months and slowdowns and slumps, and with each one my social media and inbox fill with breathless chatter that the Big Correction was on the way.
Many people even hope that a crash will come soon, imagining that first-time buyers will finally be able to build equity and afford the housing security that’s been out of reach for practically ever.
After so many years of this, though, I’ve adopted the only sensible position: I’ll believe it when I see it. In this long bull run, nothing has slayed the beast; nothing has even really disgruntled the beast.
Until now.
The other end of the snake
To be clear, I’m not here to tell you that the “bubble” is actually really finally going to burst this time. Predicting the future is an industry with no upside. But things are a little off this year, and it’s evident when you look at a number that the general public doesn’t heed much.
Days on market, or DOM, is an approximation of how long it takes for a home to sell. When it changes, economists and housing watchers take note. In San Francisco, DOM has suddenly changed fast.
At the beginning of 2022, the national average was 61 days — considered quite a hot seller’s market. But here’s hotter than hot: For all of 2021, the median DOM for San Francisco was 19. In some months this year it has dipped as low as 14 days; certain neighborhoods could see a home sell in less than a week.
Those kinds of numbers are — and we’re going to use a technical term here — completely insane. They’re also usually reckoned unsustainable, and yet we have sustained them; the average citywide DOM over the past seven years is just 22 days, a number that should make economists go blind.
This year has continued to blaze: Up to Oct. 28, the median for 4,617 SF homes sold this year, condos and houses alike, was 15 days on the market. (Median price: $1.45 million.)
Look more closely, however, and there’s a snake in the grass. Of the homes that haven’t yet sold (1,433 current listings), the median DOM is 41 days and counting — by San Francisco standards, a shocking figure.
DOM in SF sometimes pushes up higher than that in, say, January, the coldest, darkest month of the year for home sales. But you’d have to go back to 2011 to find a fall selling season when homes lingered for so long.
‘Maybe the most reliable seller’s market in the U.S. has become unreliable, like a longtime partner having a midlife crisis.’ — SF Realtor Cynthia Cummins
Homes sold are creating the impression of a light-speed market, but when the large and largely unseen bolus of slowpoke listings finally reach the other end of the snake and find buyers (potentially after cutting prices), housing metrics could take a hit. It’s a market “much softer than usual — a major correction,” says Patrick Carlisle, analyst for the real estate firm Compass.
Some of those lingering homes will move, but others will get yanked off the market to wait for a better time to sell. MLS has recorded 1,730 canceled or expired offerings in 2022; except for 2020, with its wave of March cancellations in the face of a citywide shutdown, this is the highest rate since 2011, which was the waning end of the Great Recession.
“All the ‘normal’ patterns in SF real estate have been disrupted,” SF realtor Cynthia Cummins tells The Frisc. “Maybe the most reliable seller’s market in the U.S. has become unreliable, like a longtime partner having a midlife crisis.”
There’s change on the rental side too. According to SF-based rental platform ApartmentList, rents are up in the city since 2020, but they’ve bounced much higher in surrounding cities, as many displaced renters opt not to return.
Not even COVID could disrupt SF’s housing nightmare, so what’s happening now?
Blame inflation
Interest rates are generally reckoned to be the biggest factor. The 30-year fixed-rate mortgage, at just over 7 percent, has more than doubled this year. The Federal Reserve is wielding higher rates as its main inflation-fighting tool, and the last time they were this high was 2001.
Indeed, SF housing hit a wall right as rates rose; before Aug. 1, SF homes sold on median in 14 days, but for homes sold since then, the figure is 24 days.
But that stock answer isn’t all: the sheer frothiness of SF’s housing market is also to blame. A 3 percent increase is one thing if you’re buying a house in Des Moines, Iowa, but quite another if you’re buying in San Francisco. “SF has been hit hard by remote work and an outflow of residents,” Charlie Dougherty, economist for Wells Fargo, tells The Frisc, and higher mortgage rates are now pricing out even wealthy buyers. In other words, for those who can work anywhere, buying elsewhere is now exponentially more appealing.
When prognosticators said for years on end that SF’s market was unsustainable, they were wrong — in that specific environment. But when you change the fundamental assumptions of buying a home, everything goes out the window.
For many, this will sound like great news; Back in June, when a Utopian Facebook page quipped, “The new Millennial dream is a housing market crash,” more than 416,000 users approved; it’s a common sentiment in online spaces — a joke, but one that many people take seriously — where users hope a big bust will knock housing prices back to the ’90s. Maybe NIMBY types even imagine this will rid us of the necessity to build.
So is this it then? Is this finally the Big One that will knock the wind out of San Francisco once and for all? Well, in all likelihood, no.
Millennial insurance policy
Zillow economist Matt Kreamer says it wouldn’t be surprising if SF dips into the red year over year for the first time in nearly a generation, which would indeed be remarkable. But “it’s almost impossible that the drop could get so deep that it even takes away pandemic gains.”
He adds that “the millennial generation is the largest, most of them are in their 30s — I don’t see a way that prices can fall enough to satiate that demand. It’s like an insurance policy against a housing crash.” In other words, prices will dip, but there’s no dip big enough to swallow all the pent-up demand, because there’s not enough supply.
Until SF has more homes to go around, we’ll never satiate that beast. “You have to have a large increase in the number of homes for sale; I don’t foresee that happening,” Dougherty observes. (It’s a national problem too.)
Even with state watchdogs putting SF on blast for its housing recalcitrance and a goal of 82,000 new homes this decade, that goal merely keeps up with growth.
If, in fact, SF’s home market contracts for the first time since dinosaurs roamed the earth (or at least since Tom Ammiano held political office), it will let a few extra buyers squeak into a down payment, even with the greater demands of higher mortgage rates.
But the rest of us will still be left milling around outside, waiting to bid on tens of thousands of homes that haven’t been built yet.
Adam Brinklow is a staff writer for The Frisc, covering housing and development. He’s lived and worked in San Francisco for over 15 years.
