The San Francisco housing market, and the better part of the Bay Area for that matter, has boasted some of the highest home prices in the country for quite some time. However, the gains appear to have tempered, at least for the time being. According to the California Association of Realtors, home sales in San Francisco have declined for the first time in a while. Down 19.5 percent in September from the previous year, home sales have weakened, and people are starting to take note. Some experts believe the market is finally starting to correct itself, as prices have gone too far.
“We’re going through a kind of correction, as we have a lot of new developments being built right now. The supply is definitely on the rise,” said Justin Fichelson, an agent at Climb Real Estate Group in San Francisco. “The market is not going to continue going up like we’ve seen in the past two years, because prices are already high.”
The San Francisco real estate market has been at the forefront of the recovery since day one. Few – if any – markets have been able to keep up with the pace of appreciation in San Francisco, which would explain the recent market correction. Homes are simply becoming too expensive in the city.
The median sales price of a home within the city reached $1.189 million in September, or a year-over-year increase of 11.6 percent. At their current price range, homes in San Francisco are five times more expensive than the national average. To that end, buyers are tired of the price increases, and they have finally begun to look elsewhere. While demand is still high in the most popular neighborhoods, more people are refining their search to include the wider Bay Area. The mass exodus from the city center would explain the recent drop in home sales, and experts suspect this may be a trend worth monitoring.
“The ‘spillover’ effect continues in the San Francisco Bay area, with more people looking for affordable homes in the inland counties,” said Andrew LePage, research analyst at CoreLogic. “The year-over-year gain in sales last month was greatest in three of the San Francisco Bay Area’s most affordable, and also inland, counties: Contra Costa, Solano and Napa. Through the first nine months of this year, the combined sales for those three counties jumped about 15 percent — more than twice the year-over-year gain for the overall region.”
Prospective buyers looking outside of the city have found prices to be a little cheaper, but not by much. As recently as September, the median price for a home in the Bay Area was $650,000. While that is considerably less than the city of San Francisco, it still represents an 8.3 percent increase over the last year. The real draw, however, lies in the available inventory. The greater Bay Area has an abundance of available homes, at least compared to San Francisco, where demand remains high.
“The properties that are sitting on the market are those that have flaws. If it’s in a great neighborhood and completely redone, you can still get over what it’s technically worth,” added Fichelson.
San Francisco still has demand, which should prevent prices from dropping too much more, but prospective buyers are sick of where the market has taken them. Availability remains low and prices are still very high. Expect more buyers to start looking outside of the city limits. Oakland, as a result, could see a jump in demand.