As the U.S. housing market comes to an unprecedented standstill, San Jose and San Francisco homeowners are feeling the impact. According to a recent report from Redfin, only 1% of U.S. homes have changed hands so far in 2023, the lowest share in at least a decade.
The scarcity of available homes, coupled with the affordability crisis, is leaving many homeowners stuck in their current homes, even in desirable and affluent cities like San Jose and San Francisco. With a measly six out of every 1,000 homes in San Jose changing hands in the first half of 2023, the city currently experiences the lowest turnover rate among the 50 most populous U.S. metros, thanks to the housing shortage.
So, what's causing this housing market standstill? In 2018, Freddie Mac estimated a shortfall of about 2.5 million homes, primarily due to the lack of single-family home construction. Fast forward to the homebuying boom of late 2020 and 2021, fueled by low mortgage rates, remote work, and a surge in investor purchases, the already low inventory levels plummeted further. Then, as the Redfin report points out, 2022 saw skyrocketing mortgage rates, which nearly doubled from January to June, exacerbating the shortage by handcuffing homeowners to their comparatively low rates.
"The quick increase in mortgage rates created an uphill battle for many Americans who want to buy a home by locking up inventory and making the homes that do hit the market too expensive. The typical home is selling for about 40% more than before the pandemic," explained Redfin Deputy Chief Economist Taylor Marr. To counter this crisis, Marr suggests a combination of housing construction, zoning reform, reduced transfer taxes for sellers, and tax breaks to subsidize large moves.
Suburban homeowners, particularly those with larger properties, have been hit hardest by the turnover crunch. The Redfin report found that just 16 of every 1,000 four-bedroom-plus suburban single-family homes were sold in the first half of this year, a significant drop from 24 of every 1,000 in the same period in 2019. As a result, buyers seeking such homes now have 33% fewer options.
While smaller homes in urban areas like San Francisco and San Jose have seen the lowest turnover rates, with just 11 of every 1,000 two- and three-bedroom houses trading hands, the struggle to find homes extends to buyers in every price range, in both urban and suburban neighborhoods. The lack of new listings is further aggravating the demand for housing, with the pandemic-induced supply shortage leading to a 30% drop in turnover rates in major California cities since 2019.
California's historically low housing turnover is also attributed to the state's tax laws, which incentivize homeowners to stay put by limiting property-tax increases. However, not all U.S. cities are experiencing the same level of stagnation. Newark, NJ, and Nashville, TN, boast the highest turnover rates, with 24 and 23 of every 1,000 homes changing hands, respectively. Meanwhile, cities like Milwaukee and Columbus, OH, have seen relatively stable turnover rates due to the lack of dramatic homebuying demand swings throughout the pandemic.
