We’ve talked at length this year about how one of the driving trends in the current San Francisco real estate market is low inventory. Since we living an era where the common attitude is “pics or it didn’t happen” (much to Prince Harry’s chagrin) – I thought I’d share with you a chart that visually illustrates how low housing supply is in San Francisco.
MSI stands for Months Supply of Inventory and it is a metric that looks at how many homes are on the market and how quickly they are selling. It answers the following question: If no more homes came on the market and at the current sales rate, how many months would it take to sell all the existing homes on the market? San Francisco has always had an MSI – again, Months Supply of Inventory – that is on the low side compared to many regions in the nation.
So, for example, if there are 60 homes currently on the market and the sales rate is 30 homes per month, then the MSI is equal to 2. Which means in two months there would be zero homes for sale.
Most market watchers consider a MSI of between 4 and 6 a “balanced” market, with anything about 6 indicative of a “buyer’s market” and anything below 4 indicative of a “seller’s market.” As you can see from the chart above, we peaked at 5.6 months supply of inventory in September of 2010, and are currently down to an incredibly low 1.4 months supply of inventory. Which means that if no new listings came on the market, every home in San Francisco would be sold (under contract) within 6 weeks – roughly October 1 as I write this post.
What does this mean to you? If you are a buyer and are frustrated with the lack of options, you aren’t insane. There just isn’t a lot out supply out there. Economic news has been getting better (slowly) over the past several years and interest rates are at historic lows, which has put an incredible number of buyers in the market (and this is putting aside the Facebook hogwash). Many sellers that couldn’t sell from 2009 – 2011 ended up deciding to put tenants in their properties or otherwise removed them from the sales market, so we’ve got a perfect storm of low supply and high demand.
The end of August is also the height of San Francisco’s summer slump, in which sellers avoid listing in July and August so they can avoid our foggiest weather and/or take vacation. We usually get a nice inventory bump immediately after labor-day and through the end of October, but given the number of buyers in the market right now, even a large bump in inventory will still leave us with a very competitive market.