Prices remain very high in San Francisco's for-sale market for homes, but that is partly because so few have come on the market, relatively, over the last year — the lowest monthly number in two decades. And the reason for that is pretty clear.

While our housing market is often called out for its extraordinarily high prices, San Francisco is far from extraordinary in the current trend of what real estate people call the "mortgage lock-in effect." Everyone who locked in mortgages at 3% or similar in recent years are loathe to give those up and take on some new mortgage at 7% or higher, which is what they're now averaging.

Mortgage rates tend to move in lock-step with the Federal Reserve's interest-rate changes. And the last year of steady hikes by the Fed have meant that no one is moving out of their homes unless they absolutely have to — and even then it might behoove them to rent them out and rent elsewhere rather than getting stuck with a higher rate. Yahoo Finance noted the trend last fall, and Fortune wrote about it in March, noting that the interest-rate rise means "the market is losing buyers looking to move up, and losing sellers looking to move up."

In the local market, the San Francisco Chronicle reports this week that the number of homes for sale in the Bay Area is at its lowest level in 20 years, and the number of properties hitting the market has been dropping precipitously since January 2022.

"According to Compass data, which goes back two decades, the number of new listings on a 12-month rolling basis in spring 2023 fell below 80,000 in the 11-county greater Bay Area — which includes Santa Cruz and Monterey counties — down from a pandemic high of more than 100,000 in mid-2021 and an all-time high of more than 180,000 in 2006," the Chronicle writes.

This is being seen all over the country, with the website Zillow saying there were 23% fewer listings last month as compared to May 2022.

The Chronicle was reporting on this new Redfin analysis about the mortgage lock-in effect, which notes that "Rates would need to fall quite a bit to motivate homeowners" to sell, and that means a couple of whole percentage points for many homeowners. A reported 91.8% of mortgaged homeowners have rates below 6% these days, and 23.5% locked in rates below 3% during the days of deep rate cuts by the Fed.

"The lock-in effect is unlikely to go away in the near future," says Redfin Redfin Deputy Chief Economist Taylor Marr. "Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further. Some of them simply don’t want to take on a 6%-plus mortgage rate and some can’t afford to."

A Redin Premier agent based in Atlanta, Jasmine Harris, adds, "The only people selling right now are the ones who need to. The last three potential sellers I’ve met are people who are moving out of the country. I’m also working with someone who’s moving out of town for a new job and another person who needs a smaller home for health reasons."

With so little housing inventory in San Francisco, this only extends the problem of perpetually rising prices — because those who need to move here and are motivated to buy are pushing prices higher.

The only real winners are those longtime homeowners whose home values skyrocketed during the pandemic. And, the Redfin report notes, some of them can afford to sell and take on a new rate because of their huge gains in equity in their existing homes.

Photo: Parker Gibbons