Welcome! In February’s newsletter, we review 2019’s biggest housing trends for the San Francisco market and share our predictions for the year ahead. What will happen to home values in 2020? Will San Francisco become more or less affordable? Will interest rates go up? We’ll answer these questions and more in the following sections:
The 2019 Economy and Housing Market in Review
In 2019, the national economy grew at a steady, healthy pace. Employment remained near all-time lows, and gross domestic product (GDP), a measure of all goods and services produced during the year, grew by more than 2%. In spite of some potentially negative economic events, such as the trade war with China, the U.S. economy remained strong. The wage growth from October 2018 to October 2019 tied with the growth from April 2008 to April 2009 for the largest year-over-year increase in the past decade. The country also added 312,000 jobs in December, nearly doubling November’s job growth of 176,000.
The Federal Reserve surprised a lot of folks by reducing the federal funds rate three times in 2019 in order to maintain a thriving economy. The federal funds rate, which indirectly impacts a variety of consumer interest rates including credit cards and car loans, significantly affected mortgage rates in 2019.
After rising in 2018, last year’s mortgage rates returned to historic lows. Lower rates typically improve housing across all markets by giving home buyers access to cheaper financing.
In June 2019, home prices in San Francisco hit their yearly peak. While this trend is typical for the spring months, it was accelerated by falling rates. The chart below shows interest rates decreasing and home prices increasing.
In the latter half of the year, home prices pulled back from their spring highs while interest rates fell even lower, increasing affordability. In California, mortgage payments fell by 7.4%, the largest decline in the last five years. This drop more than offset the 10..4% increase in median home prices, and mortgage payments declined for nine consecutive months.
San Francisco has struggled with affordability since the recovery from the last economic recession and was one of the few areas in California that did not end the year up in median single-family home prices. In 2019, a year of increased affordability throughout the state, San Francisco median home prices settled slightly down for single-family homes and up only slightly for condos.
This makes sense considering the lackluster performance by the city’s other key housing indicators. Sales spent much of the year lower even though single-family home sales climbed in December to finish 6% higher than the prior year. This is due to much lower interest rates this time around.
Sales are languishing because there simply aren’t many homes on the market to sell. Months supply of inventory, a measure of how many months it would take to sell all the active listings on the market at the current rate of sales, fell in California for the seventh straight month, down 22.5% from December 2018. This was the fourth consecutive double-digit drop and the largest since April 2013.
Inventory shortages at the start of 2019 were already severe, and San Francisco’s months supply plummeted to extremely low levels by the end of the year. In December, a month that usually has seasonally higher levels of supply due to slow holiday sales, supply tightened further to one month for single-family homes. Typically, such low levels of supply would push up home prices, but in San Francisco, it appears home prices have hit a ceiling.
Last but not least, in 2019 properties moved much slower for most of the year. Days on Market (DoM), the measure of how many days it takes for a seller to accept an offer from the first day of listing, started the year out with homes taking 20% longer to sell from the previous year. It took until the end of the year for the market to reverse course
After several price reductions, a listing can become so stale that it makes sense to withdraw it from the MLS and relist it after a certain period of time has passed. However, this strategy is often successful because it’s common for a home to sell soon after coming to market as a “new” listing.
Economic and Housing Market Predictions for 2020
Happily, we’re not forecasting a recession in 2020. The stock market is doing well and the trade conflict has died down. While pundits do forecast GDP to decrease slightly and unemployment to increase slightly, we predict it will be another stable year for the housing market.
CAR predicts that median home prices will be stable this year, with a slight increase of 2.5%. Affordability will remain unchanged, with 32% of California residents able to buy a median-priced home. Home sales are predicted to increase by 1%.
In 2020, we believe the severe shortage of available housing will cause more residents to leave the state. According to CAR’s 2019 State of the Housing Market Study, 30% of sellers planning to repurchase said they will buy their next home in a state outside of California. This is the highest rate of prospective buyers moving out of state since 2005.
Median Price Predictions for San Francisco in 2020
The 2020 housing market in San Francisco will strengthen in favor of sellers due to the overall lack of supply, and both single-family homes and condos should increase in price. The following chart, based on CAR’s median price predictions for the upcoming year, show we can expect prices finishing up 2.5% year-over-year:
We hope you found this info in this month’s newsletter helpful. Should you have any questions about the market, or wonder what home-improvement projects will give you the biggest bang for the buck, I am always just a cell phone call away: (415) 595-7661.
Cell: (415) 595-7661