Breaking: San Francisco Home Prices Plunge 30% - Shocking Rise in New Home Cancellations

Breaking: San Francisco Home Prices Plunge 30% - Shocking Rise in New Home Cancellations

Table of Contents:

1. Introduction
2. Rental Demand Decline
3. Record Cancellations by Home Builders
4. Declining Prices in San Francisco
5. Apartment Demand Plunge
6. Cancellation Rates in New Home Sales
7. Home Builders' Confidence Levels
8. Impact of Mortgage Rates on Home Sales
9. Quick Moving Count for New Homes
10. Falling Sales and Prices in San Francisco

**Article:

Introduction*

The real estate market is currently facing some alarming trends that are causing concern among experts and investors. Rental demand has significantly declined, while home builders are reporting record cancellations, surpassing even the levels seen during the Great Financial Crisis. Furthermore, there have been reports of a 30% decline in housing prices in San Francisco. In this article, we will Delve into each of these aspects and explore the implications they may have on the real estate market.

Rental Demand Decline*

One of the major concerns in the real estate market is the sharp decline in rental demand. This decline is attributed to the impact of inflation on consumer confidence. It is not limited to apartments alone but extends to other types of rentals and homes for sale as well. The Chart depicting U.S apartment leasing traffic shows a plunge to the lowest level since the fourth quarter of 2013. This indicates a significant reduction in the number of leads or guest cards created per unit by quarter. In 2021, there were 1.4 interested individuals per unit available, but that number has now dropped to around 0.7.

Record Cancellations by Home Builders*

The real estate market is further experiencing difficulties with record cancellations by home builders. KB Home, one of the prominent home builders, has reported a cancellation rate that spiked to 68% in the recent quarter, compared to 35% in the previous quarter and 13% in the fourth quarter. This cancellation rate is even higher than what was observed during the 2008 housing crash when the average cancellation rate was around 47%. The drastic increase in cancellations is evident in a graph showcasing single-family homes under construction. Although not at the levels seen during the housing Bubble, the Current numbers are relatively high, reaching about 800,000 new homes per year.

Declining Prices in San Francisco*

One of the most alarming reports is the 30% decline in housing prices in San Francisco. Sales of single-family houses in the Bay Area fell by 37% year over year, while in Southern California, sales dropped by 48%. California as a whole experienced a 44% decrease in sales, totaling to 240,000 homes sold. These figures are slightly higher than the lowest point reached during the 2007 housing bust. However, it is important to note that the 30% decline in prices might not be representative of all houses in San Francisco. The median price went up due to an increase in purchases of more expensive homes, while cheaper homes made up a significant portion of the sales. A more accurate measure of price decline is the square foot median price, which dropped by approximately 10%.

Apartment Demand Plunge*

The decline in rental demand does not solely pertain to apartments but encompasses other rental properties as well. In 2022, there has been a significant drop in interest for rental properties, both for apartments and single-family homes. This decrease in demand can be attributed to factors such as higher inflation and reduced consumer confidence. People are becoming more cautious about their spending and are less keen on investing in rental properties. This has led to a decline in the number of leads or guest cards created per unit, reaching its lowest level since 2013.

Cancellation Rates in New Home Sales*

The cancellation rates in new home sales have become a cause of concern for the real estate market. Home builders are experiencing record cancellations, surpassing the levels observed during the 2008 housing crisis. This spike in cancellations is significantly impacting home builders such as KB Home, whose cancellation rate has risen to 68%. This is further compounded by the fact that home builder earnings tend to lag behind by 12 to 18 months. Therefore, if sales Continue to slow down, it is highly likely that price to earnings ratios will increase as earnings fall.

Home Builders' Confidence Levels*

A substantial indicator of the current state of the real estate market is the confidence level of home builders. The chart depicting home builders' confidence reveals that it is currently at its lowest level since circa 2012. This decline in confidence indicates a lack of optimism among home builders regarding the future of the market. It highlights the challenges they are facing, such as declining sales and cancellations, and the uncertainty surrounding the future of the real estate market.

Impact of Mortgage Rates on Home Sales*

The rise in mortgage rates has a significant impact on home sales. In times when mortgage rates are low, home sales tend to increase, as they become more affordable for buyers. Conversely, when mortgage rates rise, home sales decline due to the increased monthly payments and reduced incentives for potential buyers. The graph showcasing new and existing home sales versus mortgage rates demonstrates this correlation. As mortgage rates dropped to record lows in 2021, home sales experienced a sharp increase. However, as mortgage rates reversed and climbed to as high as 7%, home sales have seen a substantial decline.

Quick Moving Count for New Homes*

The quick-moving count for new homes is an important indicator of market activity. This count refers to homes that are being constructed and will be ready for sale within 30 to 60 days. In 2021, the count fell to approximately 12,000, but it has since rebounded, reaching around 32,000, indicating a 20% increase within a year. This indicates that there is still demand in the market, and developers are actively responding to it by constructing new homes. However, the fluctuations in this count should be closely monitored, as they provide insights into the overall health and stability of the real estate market.

Falling Sales and Prices in San Francisco*

San Francisco, known for its booming housing market, is now experiencing falling sales and prices. The decline in sales is evident in the Bay Area, where sales of single-family houses have fallen by 37% compared to the previous year. Southern California and the entire state of California have also witnessed significant drops in sales, with decreases of 48% and 44%, respectively. The alarming aspect is the 30% decline in housing prices in San Francisco, plunging from a peak of $1.54 million to $1.08 million within nine months. However, it is essential to note that the median price alone does not provide a complete picture of the price decline. The decline is likely more accurately represented by a 10% drop in the square foot median price.

FAQ:

Q: What is causing the decline in rental demand? A: The decline in rental demand can be attributed to inflation and reduced consumer confidence.

Q: Why are home builders experiencing record cancellations? A: Home builders are facing record cancellations due to various factors such as decreased buyer demand and economic uncertainties.

Q: Are housing prices in San Francisco down by 30%? A: While the median price suggests a 30% decline, the actual decline in housing prices is likely to vary depending on the specific market segment.

Q: How are mortgage rates affecting home sales? A: Rising mortgage rates have resulted in a decline in home sales as the increased monthly payments make purchasing a home less affordable.

Q: What does the quick moving count for new homes indicate? A: The quick moving count reflects market activity and the rate at which new homes are being constructed for sale within a specific timeframe.

Q: Are housing prices in San Francisco expected to continue declining? A: The decline in housing prices in San Francisco may be influenced by various factors, including economic conditions and buyer preferences. It is important to closely monitor the market for further developments.