San Francisco’s housing market is seeing the largest number of homes for sale since the 2008 recession (SFGate reports). Sellers are re-entering the market in larger numbers than we have seen in some time. Here are 3 reasons why:
1. INTEREST RATES
Despite record unemployment and disruption to the rental market, the pandemic has left many San Francisco residents with more money than usual as their personal spending has dropped considerably. Those interested and able to buy a home are now able to take advantage of the lowest interest rate environment in history. Freddie Mac reports that the interest rate on a 30-year fixed mortgage is at 2.88%. This is the first time the rate has dropped below 3%.
The affordability of a home increases significantly with each percentage of interest lost. A loan for a median-priced home from January 2020 at a rate of 3.72% costs $700 per month more than a loan at 2.88%, amounting to $250,000 over the life of the loan.
For buyers, this could be the lowest interest rate they will experience in their lifetime and an excellent time to execute the purchase of a home. It appears Sellers are ready to take advantage of a new influx of Buyers.
2. SALES PRICES REMAIN HIGH
Typically, a surge in supply would bring down prices; however, demand still outpaces supply keeping prices high. San Francisco’s prices tend to be buoyed by lack of supply compared to demand, which still remains true. We believe that the supply will make the market more efficient in that buyers will have more options to find what they actually want, leading to more sales. San Francisco needed more supply, so we view the influx as a net positive for the market.
3. MARKET CONFIDENCE
The initial seller reticence caused by COVID-19 and the Shelter In Place orders seems to have subsided, increasing supply. The difficulty that the housing market experienced in March through June, as evidenced by sales volume and active listings, has subsided.
In summary, the housing market has shown its resilience through the pandemic and remains one of the safest asset classes.
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