Mid-Year Real Estate Update

As I write this column, the first half of 2023 is just about over. Each year has its own challenges and this year we have been dealing with rising inflation, higher interest rates, a volatile stock market and the seemingly never-ending battle with crime, homelessness and drugs in San Francisco. So where is the real estate market at? 

I analyzed the single-family home markets in the Richmond and Sunset districts, because these two markets generally track very closely together, and compared them against the data in San Francisco. 

For the first six months of 2023, 61 single-family homes sold in the Richmond, as compared to 107 in 2022, a 43% decrease! The median price went from $2.55 million in 2022 to $2.33 million in 2023, a decrease of 8.6%. The median number of days on the market increased from 12 to 15. Thus, we had a substantially lower number of sales, lower prices and a slightly longer amount of marketing time in the Richmond.

In the Sunset, 147 homes sold during the first six months of 2023 versus 225 in 2022, a decrease of 34.7%. The median price dropped from $1.828 million in 2022 to $1.51 million in 2023, a decrease of 17.4%. The median number of days on the market went from 11 to 13. In the Sunset, we also have fewer homes selling, a decline in prices and also a slightly longer marketing period.

In San Francisco as a whole, the number of single-family home sales decreased by 32.1%. The median price dropped by 19.5%, and the marketing time went from 12 to 14 days. So, the trend is comparable to the Richmond and Sunset districts. 

We can conclude that the real estate market in the first half of 2023 was very slow, despite the fact that the major stock indexes dropped in March but then came back to either about the same or up substantially to about 25% for the year, and the mortgage interest rates stayed in the 6.5 to 7% range. Inflation is finally coming down with all the Fed Funds rate increases. The Fed stopped increasing interest rates but signaled that there might be a couple more coming up, depending on the future inflation numbers. 

As mentioned many times before, real estate is a lagging economic indicator, meaning that all the other indicators will turn positive before the real estate market. It tends to lag by about six months to a year. So now with the other indicators turning positive, we might be looking at a bottom in real estate toward the end of the year. Also, we normally get the best prices in the springtime, with prices trending somewhat lower through the summer. This timing feels about right.

With the mortgage rates going from about 4% to 7% in the last 12 months, this translates roughly to about a 28% loss in purchasing power. We are fortunate that prices have not dropped this much yet. Much of that can be attributed to the lower interest rate environment we have gone through prior to this increase. 

People who bought a home recently or refinanced in the last few years are holding on to historically low mortgage rates and are reluctant to sell. If they need to, many choose to keep the property and rent it out. Others cannot afford to sell and buy something else with the higher interest rates, so they decide to stay. This leads to lower listing inventory, and buyers have to compete to purchase, thus keeping the prices from falling too much.

I think this trend will continue for the rest of the year and I will keep you updated on the market. As always, if you are thinking about buying and selling, I would strongly recommend that you consult with a Realtor, accountant and perhaps an attorney prior to making any major real estate decisions.

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email at johnlee@isellsf.com.