San Francisco Homeowners Selling at a Loss in 2023

Photo by Daniel Abadia on Unsplash

San Francisco is synonymous with innovation, technology, and jaw-dropping real estate prices. However, the real estate landscape in the Bay Area experienced a seismic shift in 2023, catching the attention of homeowners, prospective buyers, and analysts alike.

In 2023, home sellers in the Bay Area face some harsh realities, with many taking significant hits on their properties.

San Francisco Sellers Take a Hit: A Fourfold Increase in Losses

For years, San Francisco has had skyrocketing real estate prices, but in 2023, sellers in the area are four times more likely than the average US home seller to sell their homes at a loss. The decline was mainly due to the region experiencing outsized home-price depreciation last year when high mortgage rates triggered a housing market slowdown.

A year ago, only 5% of homes in the Bay Area were sold at a loss. Today, a jaw-dropping 12.3% of homeowners are changing hands for less than their purchase price. This is a remarkable shift, not just a local issue. SF stands out in stark contrast to other major US metros, as the national rate of homes sold at a loss hovers around 3%.

To put numbers to it, a typical homeowner in San Francisco selling at a loss sells properties that are $100,000 less than when they initially purchased it, compared to a $35,538 loss nationwide.

In contrast, Redfin’s analysis of county records and MLS data across the 50 most populous US metro areas revealed that homeowners in San Diego, Boston, Providence, RI, Kansas City, MO, and Fort Lauderdale, FL are least likely to sell at a loss. That’s because only about 1% of homes sold for less than the seller’s initial investment.

The Reasons Behind the Decline in SF Real Estate Prices

The reasons behind this dramatic shift are multi-faceted. Here are three reasons behind this trend:

1. San Francisco's Expensive Real Estate

One of the contributing factors to the price tumble is that the Bay Area has long been home to the most expensive real estate in the nation. The distinction meant that the market had considerable room for prices to fall. The city’s meteoric rise in property values over the past decade created an unsustainable bubble that has been gradually deflating.

According to Redfin Premier real estate agent Andrea Chopp, some condos in the Bay Area have taken a hit in value, falling below their 2018 and 2019 purchase prices. Even though there are still potential buyers in the market, they’ve become more cautious and selective than when mortgages were low.

Although this might be a healthy adjustment from the unsustainability of home prices in the Bay Area, the downside is that home prices remain out of reach for many, significantly when the interest rates have surged above 7%.

2. Layoffs in the Tech Sector

Another reason is the massive layoffs in the technology sector. San Francisco is a tech hub, meaning the tech industry is a significant part of the area’s economy and real estate market. People losing their jobs created ripples across the city’s housing market.

The fluctuating job market and the increasing uncertainty in the sector cause many workers, not just in the tech industry, to reassess their financial priorities until they secure their employment. In other words, this trend caused less consumer confidence, resulting in decreased demand for high-priced properties, further pressuring sellers to adjust their expectations.

3. Increasing Popularity of Remote Work

Lastly, the COVID-19 pandemic accelerated the trend of working from home, and it’s here to stay. This development allowed countless people to relocate to more affordable areas while still holding high-paying jobs.

People are no longer tethered to the high-priced urban centers. With its excessive living costs, the allure of living in San Francisco has lost its sheen as remote workers have discovered the joys of affordable suburban or rural living. The trend created an exodus away from the city, contributing to the downward pressure on prices in tech hubs like San Francisco.

It’s Not All Bad

In today’s real estate scene, most US home sellers are still raking in profits, even amid a housing downturn. The resilience is partly due to the scarcity of homes for sale, which fuels bidding wars and helps maintain property values.

During the three months ending July 31, 2023, around 97% of home sellers nationwide sold their homes for a profit, typically for 78.4% ($203,232) more than they bought it for. In San Francisco, most homeowners sold their homes for 70.5% ($625,500) more than the initial price they purchased it for.

Most investors or homeowners who bought their homes at the market's peak are hanging on tight. Selling now would likely mean taking a financial hit, so they’re not selling. Instead, those choosing to sell have often held onto their homes for a good while, allowing them to turn a profit, regardless of the occasional ups and downs in the housing market.