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San Francisco Bay Area Market September 2022 Update

San Francisco Bay Area Market September 2022 Update

A new normal

It’s undeniable that the real estate market has been through a very abnormal period since the pandemic started. The graph below shows the % change in pending sales every month from Jan 2018 to Aug 2022. You see a big dip in April of 2020 when the stay-at-home order was implemented. You also see the pending sales dwindling as the interest rate started to rise in 2022.

August 2022 Pending Sales

The Bay Area exception

Here in September, the August sales data start to show what a new normal will look like. For the first time in 2 years, we see the sale price-to-list price ratio dips below 100%.

The sale price-to-list price ratio is simply taking the sold price of a home and dividing it by the list price. For instance, a home listed at $1,000,000 but eventually sold for $1,200,000 would have a 120% sale price-to-list price ratio. Before the pandemic, the state of California has never seen a state-wide ratio over 100%. Starting from 2021 and the first part of 2022, this ratio has been hovering over 104%. “Wait a second”, you may ask, “Homes in the bay area often sell for 15% to 25% over list price even before the pandemic, don’t they?” Yes. That’s true. Keep in mind the graph shows a state-wide average. The Bay area has always been a hotter real estate market than the rest of California. Remember, there are a lot of rural parts of California where people have never heard of homes sold above the list price. Finally, this state-wide metric has fallen to 98.4%, back to the pre-pandemic level.

 

My expectations for the market

I expect the days on market number will continue to rise. The supply of homes will rebound to the pre-pandemic level and even higher. Speculators and investors will stay out of the home buying market for the next 6-12 months. Buyers will have a lot more homes to choose from. Those who have cash will hold on to it to evaluate whether their cash is better parked in the stock market on the real estate market. The user-buyers in the market will be very sensitive to interest rates. The month when the interest rate dips will see a substantial increase in listings going into contract.

A new home-selling game

The home selling game will become a lot less predictable than before. Sellers will be hesitant to stage their homes because they don’t know how long the home will stay on market. With the absence of cash buyers and flippers, the fixer-uppers will not be as sought after as before. If you have been wanting to use a 203k loan to buy a fixer-upper to fix it up for yourself,  you will see that the market will be in your favor.

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Lex Shan

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