From the Golden Gate Sotheby’s Bay Area Market Report…

SEASONALITY RETURNS TO THE SF BAY AREA HOUSING MARKET

With the approach of the end of the year and seasonal factors coming into play, the housing market continued to slow from the record-setting pace of 2021. The last two months of a year tend to produce lower levels of activity, also referred to as seasonality, and this November was no different.

EMPLOYMENT HEALTHY IN SPITE OF RECENT LAYOFFS

The regional economy remained strong in the face of a growing number of tech industry layoffs. Despite the high-profile layoff announcements from major firms, the unemployment rate in the SF Bay Area remained in the mid-2% range and there are more job openings than workers looking for jobs in many industries. The strong labor market across nearly all industries continued to drive wage growth. The stronger income outlook for households helped convince many potential buyers to return to the market as mortgage rates fell from the recent peak.

MORTGAGE RATE DROP AND PRICE REDUCTIONS ENCOURAGE SALES

The drop in mortgage rates and price reductions by some sellers helped spur sales activity. Though down from last month, the drop in sales of existing homes was on par with seasonal patterns displayed in 2018 and 2019. In November, roughly 2,900 homes sold throughout the SF Bay Area. Activity varied throughout the region, with sales down slightly in San Francisco and dropping the most in Santa Clara and Solano counties. Notably, while San Francisco garners headlines as a slow housing market, monthly sales only decreased by less than 2% after increasing in October.

DEMAND VARIES BY PRICE POINT

Buyer demand for the most aff ordable homes persisted into November. Sales slowed modestly in the $750,000 to $1.25 million range, roughly the mid-point for many cities in the inner SF Bay Area. While the decrease in mortgage rates helped many buyers, solid household income remained key to purchases. Activity fell more for homes less than $750,000, generally a range for buyers where consumer confidence is at a low point given the high pace of inflation. Also of note, sales in the $3.5 million to $5 million range were roughly stable from last month. While this price range typically responds to trends in the stock market, the return to the offi ce for many high-wage earners continued to solidify demand in the SF Bay Area.

WELL-PRICED HOMES STILL SEE COMPETITIVE OFFERS

Despite the reduction in sales volume, competition for well-priced homes remains in most neighborhoods. Among homes closed in November, approximately 34% sold for more than the list price. Though down from earlier peaks, the share is higher than other parts of the country. During the last several months, the share of homes sold at a premium stabilized in the mid-30% range. However, the number of homes sold at a discount increased, highlighting that some sellers may be overly optimistic when listing for sale.

LOOKING AHEAD

While consumer confidence may lag and there are headwinds, including a growing number of announced layoffs and elevated inflation, the regional economy is strong. Household finances are solid as well, potentially leading to increased activity once the economic trajectory is more apparent to consumers. Barring a severe recession, demand for housing, and the incomes to support purchases, will persist into the new year. The reduction in pricing should spur additional buyers off of the sidelines in the coming months, potentially leading to a stabilization of sales activity. Overall, the return to a more normal pace of sales and pricing relative to the frenzied market of the past two years is a positive for the long-term health of the SF Bay Area housing market

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