Tight Inventory and Bidding Wars Lead to Windfall Gains for Sellers

San Diego homeowners are the least likely in the nation to sell their homes at a loss, while those in the San Francisco metro are four times more likely to sell for less than they paid, according to a new study by Redfin.

In San Diego, only about 1% of homes sold during the three months ending July 31, 2022 were purchased for less than the seller originally paid. This was the lowest rate among the 50 largest metro areas analyzed in the Redfin study.

Meanwhile, in San Francisco, 12.3% of homes sold during that period went for less than the seller paid – the highest rate nationally and four times the average U.S. rate of 3%.

Redfin attributed San Francisco’s high rate of sellers taking losses to the region’s outsized home price declines over the past year. As the most expensive housing market in the U.S., the Bay Area had more room to fall compared to less pricey metros like San Diego.

The typical homeowner in San Francisco who sold their home at a loss took a hit of $100,000 below what they originally paid – among the largest median losses in the country.

By comparison, the San Diego housing market has remained resilient and avoided major price corrections. The typical home sold between May and July 2022 in San Diego went for 88.9% ($400,000) more than what the seller originally paid.

This suggests that San Diego’s hot housing market is continuing to reward most sellers with significant gains, even amid rising mortgage rates and slowing price growth. Tight inventories and high demand are still fueling bidding wars that drive up sale prices.

“In San Diego, only about 1% of homes sold at a loss recently, which shows how resilient the housing market has been there despite economic headwinds,” said Redfin agent Andrea Chopp. “Home values remain elevated compared to what sellers paid, so most are walking away with major profits.”

Meanwhile in San Francisco, the housing downturn has been more stark. According to Redfin Premier agent Shauna Pendleton, some condos in the metro are now worth less than their owners paid for them in 2018-2019. This is due to remote work trends that have reduced demand for downtown housing.

Diverging Trends Show Regional Variations

The contrasting experiences of sellers in San Diego and San Francisco highlight how localized real estate markets can see vastly different conditions.

While San Francisco contends with falling prices after years of unsustainable growth, San Diego maintains a competitive dynamic fueled by tight supply and steady demand from buyers.

Nationwide, the study found that 97% of sellers are still making a profit on sales amid the overall housing cooldown. This indicates most homeowners have enough of a cushion from previous appreciation to withstand recent dips.

But for markets that got extremely overheated like San Francisco, the room for price drops was much greater. When mortgage rates shot higher this year, the most inflated markets were the most vulnerable.

“Coastal cities with very high prices got way ahead of themselves during the pandemic, and are now seeing significant corrections,” said Redfin economist Arpi Davari. “Inland and secondary markets didn’t heat up as much so they have less room to fall.”

While San Francisco led all metros for loss-making sales, other expensive areas like New York and Los Angeles also ranked highly. Meanwhile, relatively affordable regions like San Diego, Kansas City, and Providence avoided major downturns.

Housing Market Remains Polarized

The Redfin study underscores how polarized the national housing market remains – while booming areas like San Diego churn huge profits for sellers, former darlings like San Francisco see losses mount.

This bifurcation reflects how uneven the pandemic real estate surge was across regions. With remote work supercharging demand in lower-cost suburban and rural areas, previously overlooked markets saw substantial gains.

Now as the market shifts, the most inflated cities are deflating quickly. But for sellers in still-hot areas like San Diego, the boom days continue. Tight supply, new migration inflows, and robust local economies are propping up prices.

“There is still incredible competition for the few homes coming up for sale in San Diego,” said Andrea Chopp, the Redfin agent. “Buyers know they have minimal negotiating power, so homes are routinely fetching hundreds of thousands above asking price.”

So while some parts of the country require sellers to lower expectations, for markets like San Diego the housing party rages on. This patchwork of local conditions means your profit or loss often depends heavily on location