When the pandemic caused shelter-in-place orders to expand across the U.S., many urban residents longingly imagined living outside city lines. The suburbs promise space between neighbors and individual yards where homeowners can lounge outside — mask free!

How has this desire for more space played out since the pandemic began to impact housing in March 2020?

Nationally, home sales volume has struggled at roughly the same pace in both urban and suburban markets. This is also true when comparing attached and detached homes, which offer more space. Further, inventory is down dramatically in both urban and suburban markets. However, home prices and rent prices have decelerated more quickly in urban areas, according to Zillow.

There are two big exceptions, both from cities that were hit hard early on in the pandemic: in the east, New York and here in California, San Francisco.

With its supply constraints, San Francisco already has a more volatile housing market than other major metros in California. Still, San Francisco’s urban inventory is nearly double that of a year ago, while its suburban inventory remains roughly the same, reflecting a demand imbalance. This has given buyers shopping in the city of San Francisco more choices and more room to negotiate with sellers, while buyers continue to struggle against high competition in the suburbs. Compared to a year earlier, average San Francisco home prices inclusive of both its suburbs and urban areas are:

  • 1% higher in the high tier;
  • 2% higher in the mid tier; and
  • 3% higher in the low tier.

These price increases that are barely keeping pace with inflation are behind the rest of California, with statewide average price increases of 3%-5% in the high and low tiers, respectively.

San Francisco: a step ahead

In terms of housing trends, San Francisco tends to run ahead of California as a whole, and today’s rapidly increasing inventory and slipping home prices are a foreshadow of what’s to come in the rest of the state in 2021-2022.

The 2020 recession is upon us, and the housing market is still catching up to that fact. Home sales volume has begun to slide, with year-to-date (YTD) sales 11% below a year earlier as of July 2020, tightening agent incomes.

Further, the steep job losses experienced during this recession have undercut support for home prices. While they continue to ride the low interest rate wave in 2020, home prices are primed to fall. Rising 90+ day delinquencies are casting a long shadow for foreclosures, and when they arrive following the expiration of the foreclosure moratorium at the end of 2020, they will also drag down home prices.

Watch San Francisco for the warning signs, as home prices have a long way to fall everywhere in California before they realign with buyer incomes in our new economic reality.