It might be hard to fathom in this real estate market, but one in eight home sellers in San Francisco and on the Peninsula is now taking a loss.
How can that be?
Blame mortgage rates. Rising rates have pulled down home prices from historic highs during the pandemic homebuying boom. And some sellers who bought at the top of the market in 2021 and 2022 are being forced to accept less than what they paid for their homes.
According to the latest data from the real estate brokerage firm Redfin, more than 13% of those who sold homes in San Francisco and San Mateo counties between August and October went into the red — a rate about four times the national figure and the highest share of any major region in the country. The typical loss in the area: $122,500.
Sheharyar Bokhari, a senior economist with Redfin, said those selling at a loss are typically doing so out of necessity. They might be going through a job loss, divorce or other life event that doesn’t allow them to wait for a turnaround.
“They’re moving because they have to,” Bokhari said.
One seller who recently made a profit: actress Julia Roberts. She reportedly sold her six-bedroom San Francisco Victorian for a cool $11.25 million in October after buying it for $8.3 million in January 2020, just before prices started to surge.
Like Roberts, “the vast majority of people who are selling, they’re making good gains,” Bokhari said.
In the South Bay, only 3% of sellers took a loss, typically amounting to about $100,000. In the East Bay, closer to 4% accepted less money than they paid originally, with the median loss coming to $50,000.
Bokhari attributed the larger share of losing sellers in San Francisco and on the Peninsula to the fact that prices for many of the more expensive properties in the area spiked highest during the boom, before falling the furthest when rate increases squeezed buyers and chilled the market.
In October, the median single-family home price in San Mateo County was $2.1 million, according to the California Association of Realtors. That’s a roughly 13% decline from the local market’s peak in April 2022, when the median topped $2.4 million.
There was an even bigger drop in San Francisco, where prices fell 20% to $1.65 million. For the entire Bay Area, the median price tumbled 15% from its peak, coming in at $1.27 million in October.
Despite the downturn, Peninsula real estate agent Jeff LaMont said he’s seeing as many as 15 offers come in on some properties, with many going over the asking price.
“I would still classify it as a seller’s market, just not a seller’s market on steroids,” LaMont said.
Yet many would-be sellers are still on the fence, reluctant to give up the lower interest rates they locked in before the recent spike. The drumbeat of news about sky-high rates, sometimes boosting monthly payments for new mortgages by thousands of dollars, is only adding to sellers’ hesitance, said Silicon Valley agent Mary Pope-Handy.
As a result, the inventory of homes on the market remains tight.
“It’s like the toilet paper shortage,” she said. “People say there’s a shortage, and then it becomes one. Except this one is real.”
But there could be signs of relief. On Thursday, Freddie Mac reported the fifth straight week of mortgage rate declines as the average rate for a typical home loan dipped to 7.22% after closing in on 8% in late October.
Some economists forecast rates could continue falling well into next year as inflation cools — though few are predicting a return to the all-time lows that stoked the market during the pandemic. Rates hit a low point of 2.67% in December 2020.
“The current trajectory of rates is an encouraging development for potential homebuyers,” Sam Khater, chief economist with Freddie Mac, said in a statement.
Sellers holding out for a better deal could also get a break on the agent fees they’re required to pay when a sale goes through.
Typically, sellers pay a commission that’s split between their agent and the buyers’ agent, totaling around 5% to 6% of the sale price. But in November, a federal court ruled that major brokerages, including the National Association of Realtors, had conspired to keep fees high. The decision could eventually force the industry to restructure and lower such fees.
“This matter is not close to being final,” association president Tracy Kasper said in a statement. “We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition.”
LaMont’s advice for anyone nervous about jumping into the market amid all the uncertainty? View a new home as a longer-term investment, and you can expect prices to stay on an overall upward trajectory.
“As long as you can hold on for five years, you’re never going to be hurt by the ebbs and flows of the marketplace,” he said.
After San Francisco and the Peninsula, areas with the highest share of sellers losing money were Detroit and Chicago at around 7%, followed by Cleveland and New York at about 6%.