The City to Lose Money On Your House

The housing market has been on a roller coaster that began two decades ago. The Great Recession and the financial crisis that spawned it knocked home prices down; in some cases, the drop was 50%. By 2020, most of those losses had been restored. Low rates caused a pick-up in demand. Just before the COVID-19 pandemic, home prices reached all-time highs in many markets.

The pandemic changed the home market radically. People could work at home by the millions. This allowed many of them to move away from where their offices were. Low interest rates remained in place. Much of the migration was from expensive coastal cities to those inland, including Boise, Austin, and Phoenix. Home prices in some of these markets rose over 20% annually in 2021 and 2022. (These are the cities where people need the smallest downpayments to buy their home.)

The home price rally ended abruptly. Inflation triggered Federal Reserve interest rate increases. The Fed wanted to end consumer prices that started to increase by almost 10% year over the previous year some months. Mortgage rates soared because they were tied to the Fed rates. Suddenly, homes that were affordable two years ago were no longer. And home prices in some cities started to slide.

Redfin just published a study titled “1 in 8 San Francisco Home Sellers Is Losing Money—the Highest Share in the Nation. It looked at the country’s 50 largest markets. The data used were from three months, which ended July 31. The yardstick is whether people who sold their homes during that period did so for less than they paid for them.

Nationwide, 3% of people sold homes for a loss during the period. In some markets, which include Dallas and Boston, less than 1% of people lost money.

What makes San Francisco so different? First, it is among the most expensive housing markets in the nation. Median home prices are nearly $1 million. Home prices in San Francisco rose quickly over the last decade due to the extreme wealth created by Silicon Valley. (These are America’s 25 least affordable housing markets.)

As the tech industry stumbled financially and its workers were allowed to stay away from their offices, people began to migrate from San Francisco. California as a whole started to lose residents after decades of rapid growth.

Despite the grim outlook for some San Francisco residents who want to sell homes, how bad can it be if you have a $1 million home?

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