The rate of the decline in home prices in August set a record. It is more evidence that the housing market has begun to collapse, which will wipe out hundreds of billions of dollars in home equity. The city where the drop has turned to carnage is San Francisco, one of the most expensive housing markets in the country.
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The new S&P Case-Shiller home price index shows that, in August, home prices rose 13% nationwide. That is off from 15.6% in July. Previous months in 2022 posted gains that were closer to 20%. Craig J. Lazzara, managing director at S&P DJI, said, “The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022.”
More recent data shows that prices in some cities have started to fall. This is particularly true of housing markets that became popular in the past two years. For example, home prices rose by about 50% in Boise, and those prices are now dropping.
Home prices in San Francisco fell 4.3% between July and August. They fell 3.5% between June and July. At this rate, prices could drop between 10% and 20% this year. According to the Case-Shiller data, San Francisco home prices have risen faster than those in almost any city since 2000.
Migration patterns have hurt San Francisco housing since the start of the COVID-19 pandemic. People migrated from expensive coastal cities, including San Jose and New York, to more affordable cities inland. This was bound to hurt San Francisco prices eventually. These prices certainly also have been undermined by mortgage rates that have increased from 3% for a 30-year fixed mortgage last year to rates just shy of 7%.
If mortgage rates continue to rise, prices in San Francisco will become even more unaffordable. By many measures, it has the second most expensive homes based on median price, behind only San Jose. What goes up must go down. In the case of San Francisco, that may be a crash.
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