I had a conversation with a prospect recently who said, "I am in no rush to buy a home. I'll just wait for prices to drop." And it's true. Many San Francisco buyers are in no rush to buy a home because they benefit from San Francisco's rent control laws which subsidize many long term renters and creates incentives for them to stay in their rent-controlled homes.
Will prices drop? it doesn't appear that they will. I did some analysis recently of data from the San Francisco Multiple Listing Service (MLS). First, I looked at two bedroom condos in Districts 5 and 6, which includes neighborhoods like Noe Valley, Cole Valley, Hayes Valley, Corona Heights, the Castro, plus several others. Graphing the number of sales (per month) of condos in these areas shows a flat trend line, that is, the average number of sales have remained flat for the last two years. The median and average home prices are also rising during this same time period. What has changed is that the amount of inventory on the market has increased. The result of all of this is that many homes are taking longer to sell. I did the same analysis for single family homes, and have the same observations for these properties as well.
What is interesting to me is that so many buyers are waiting for prices to fall. And while they wait (and they may be waiting a long time), interest rates are likely to continue to rise. What has created this belief that prices will fall? I think that the media has focused their attention on individual homes that have not sold, on the bubble that is about to burst, etc. While it is true that homes only sell when they are priced right for what they offer (some are priced WAY too high) and that some are over-priced in SF and not selling. It is also true that there are still bidding wars on lovely homes and condos in San Francisco and that many Buyers are still willing to pay over the asking price when they feel a home is under-priced and they want to make it theirs. I think that Buyers who have a genuine interest in buying a home should consider buying now. They have more power in this current market and interest rates are still terrific.