Housing Report Roundup: More San Francisco Home Sellers Dropping Their Prices—And They’re Heading for Sacramento

(photo courtesy SFTravel.com)

The ground is shifting in California—and it’s not the San Andreas Fault.

Once the epicenter of escalating home prices—where the Haight-Ashbury house in which the Grateful Dead lived during the “Summer of Love” sold a few years ago in excess of $1 million—San Francisco is now home of the price cut. Redfin, Seattle, reported one-fourth (24.5%) of San Francisco-area home sellers cut their list prices during the four weeks ending August 16, the highest share since at least 2015.

Redfin said San Francisco has seen a greater incidence in price drops than any other U.S. metro, with the share of sellers slashing prices more than doubling from a year ago as the pandemic drives homebuyers out of the Bay Area.

San Francisco’s price-drop rate has held steady at above 24% in late summer, clocking in at 24.1% during the most recent period in Redfin’s data—the four weeks ending Aug. 23. San Francisco was one of just 11 of the top 50 metros that experienced an increase in the share of listings that cut prices, rising to 24.1% from 11.4% a year earlier. Chicago, Philadelphia and New York were among the 10 other places where the rate of price drops rose from the prior year during the four weeks ending Aug. 23.

“Buyers in San Francisco want fire-sale deals, and they’re not settling until they find them,” said Redfin agent Carlos Barrientos. “They’re in no rush because there’s so much uncertainty right now—if the price isn’t right, they can just go rent a house in Lake Tahoe for a year until their employer gives concrete guidance on if or when they need to go back to the office.”

San Francisco’s housing market has softened during the coronavirus pandemic as its residents have fled the dense, expensive city in search of more space to make remote work and homeschooling more feasible. In the second quarter, 22.7% of Redfin.com users searching from the San Francisco area looked to relocate—up from 21% a year earlier and the second highest share of any location Redfin analyzed (behind only New York).

As a result of this shift, the number of homes on the market in San Francisco surged 75% year over year during the four weeks ending Aug. 23, forcing sellers to cut prices, and giving buyers the upper hand. The median sale price for homes that sold during the period was up 6.6% year over year to $1.5 million, but this was well below the 11.4% increase nationwide. It’s worth noting that the share of homes with price drops is a leading indicator, so the trend likely would not carry over to the median sale price until these homes find buyers and their sales close over the next few months.

“It might not happen immediately, but we’ll probably see home prices fall in San Francisco eventually,” said Redfin chief economist Daryl Fairweather. “It’s clear that many homeowners think San Francisco is past its peak and that they’re better off selling sooner rather than later. Of course, the future of home prices largely depends on whether people will return to the office, or work remotely for the long run.”

The report can be accessed at https://www.redfin.com/blog/real-estate-prices-fall-san-francisco..

So, where are they going? To mangle an old phrase, “go east”—about 88 miles east, to Sacramento. In a separate report Redfin said Sacramento was the most popular migration destination in July, with more than half of home searches from buyers outside the area—many of those from the Bay Area.

More than one-fourth (27.8%) of all Redfin.com users looked to move to another metro area in July, up from 27.4% in the second quarter and 25.2% a year ago. Redfin said the work-from-home culture stemming from the coronavirus pandemic is exacerbating the trend of migration away from expensive coastal cities to more affordable inland areas that has been going on for at least five years.

“People who can work remotely are re-examining where they want to live, and for most of them that means they’re looking at places that are less expensive,” said Veronica Clyatt, a Redfin agent in Pleasanton, Calif.,40 miles east of San Francisco. “Everyone wants a bigger house and a bigger yard, and they want to pay less. A lot of people moving away from the Bay Area have had it in the pipeline for a while, and remote work is accelerating the process.”

The analysis of more than 1.5 million Redfin.com users who searched for homes across 87 metro areas in the second quarter reported Sacramento has overtaken Phoenix as the most popular destination for homebuyers looking to move to a different metro area. Sacramento, Phoenix and Las Vegas—all places with a median home price of under $475,000—are perennial hotspots for migrants. Austin and Atlanta round out the top five in terms of net inflow, as they did in the second quarter. A net inflow means more people are looking to move in than leave, and a net outflow means more people are looking to leave than move in.

The top five places with the biggest net outflow in July—New York, San Francisco, Los Angeles, Washington, D.C. and Chicago—were unchanged in the second quarter.

The report can be accessed at https://www.redfin.com/blog/july-2020-housing-migration-trends.  

Meanwhile, Zillow, Seattle said the shift to a seller’s market continues to pick up speed, with the company’s Weekly Market Report (data as of Aug. 22)  noting home seller confidence is growing and the number of new homes on the market is recovering closer to levels seen last year.

Despite this, Zillow said buyer demand continues to outpace this new supply as newly pending sales are up big in year-over-year numbers, driven partly by mortgage rates that fell even further this week.

Coming off of a strong July report from the National Association of Realtors, which reported pending sales jumped by 6 percent to their highest level since 2005, Zillow said newly pending sales rose by 16.5% from the same week last year as strong buyer demand continued into late summer—the biggest year-over-year jump since mid-February, before the coronavirus pandemic took hold.

Zillow said home sellers that accepted an offer last week typically did so after 13 days, which is 13 days faster than a year ago. New for-sale listings fell by 10.6% year over year last week. That’s the narrowest gap since late March, a possible sign that sellers are belatedly entering the market as home shopping season extends later in the year than usual.

The report said the median U.S. list price rose to $345,255, 8.3% higher than a year ago. That’s the biggest annual change since the week ending July 13, 2019. The share of listings with a price cut is holding steady at 4.2%, down from 5.7% a year ago.