This page has been updated to reflect the most recent trends in the San Francisco Bay Area housing market. Despite the fact that homes in the Bay Area housing market continue to sell for record prices, some real estate experts believe the market is leveling out. According to C.A.R., the number of house sales in the state plummeted a shocking 21 percent in June compared to the same month last year.
With the exception of the early pandemic decline in 2020, this decline is the largest since 2008. The Bay Area housing market also continues to decelerate from the frenetic levels of the last two years, offering advantageous conditions for purchasers who lost bids or waited out the intensely competitive market. The huge decline in sales occurs as mortgage rates increase, discouraging purchasers. In June 2022, home sales in the Bay Area were 26.8 percent lower than last year and 4.4 lower than in May 2022.
The interest rates are beginning to have an effect on prospective buyers hoping to enter the market. There is slightly more inventory, which is a positive development because the inventory is still historically low. But the more inventory there is, the less competitive the housing market will become for buyers. The cost of purchasing a property in San Francisco has not yet decreased. The median sales price in Bay Area topped $1 million for the sixteenth month in a row.
The median sale price for a Bay Area home last month was $1.4 million. It is the price in the very middle of a data set, with exactly half of the houses priced for less and half-priced for more in the Bay Area real estate market. The rising prices show that the Bay Area housing market is distinguished by high demand and a scarcity of available inventory. Due to growing demand from the state’s high-income residents, home prices are skyrocketing in this market.
Is the housing market in the Bay Area cooling in 2022? No, most likely not. According to Zillow statistics, the average price of a single-family house in the city was $1.91 million in June, up 11.5% from $1.74 million in June 2021. And, while inventories may grow in the fall, anticipate plenty of competition from buyers. According to current trends, housing prices in the majority of Bay Area communities will continue to climb over the next twelve months.
A significant number of purchasers led home prices to increase over the previous year in June. The median sales price of this region, which includes all nine counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, was $1,400,000 ($797 per Sq Ft). According to C.A.R., this is a 3.7 percent increase over the last June. The Bay Area median home price was 7 percent less than the previous month’s median price of $1,505,000.
Sales of existing homes were down in all the major regions of the California housing market in June. The Southern California region continued to have the sharpest decline of all regions, with sales dropping 27.1 percent from a year ago. The San Francisco Bay Area (-26.8 percent) had the second largest drop of all regions, followed by the Central Coast (-26.3 percent). May was much better than June as sales of homes declined by 8.4% percent on a month-to-month basis.
The inventory is quite low. As of June 2022, the months of supply for existing single-family houses in the Bay Area is 2.0 months, a significant increase from last year when it was 1.4 months. Homes are selling for more than the asking price because affluent home buyers are ready to spend more to win bids. Sales Price to List Price Ratio = 104.4%. Only those who do not have enough money for a down payment are delaying their purchases. Looking at the low supply of homes, high-interest rates, interested buyers may have a difficult time finding available properties in the Bay Area in 2022. Hence, sales are expected to decline further in the coming months.
Bay Area Housing Market Trends 2022
Only 6 out of 9 counties of the Bay Area posted gains in home prices as compared to last year with Alameda County at the top of the list (+9.2% YoY). San Francisco County recorded a price decline of 2.6% from last year as the median price decreased from $1,950,000 to $1,900,000. Last month’s median price in SF County was $2,015,000, a decline of 5.7%.
No county posted a price growth of more than 10%. The second-highest price rise was seen in Solano (8.7%). It was followed by Marin (5.1%), Santa Clara (4%), Sonoma (3%), and Napa (2%). The prices dropped in Contra Costa (-1.3%), San Francisco (-2.6%), and San Mateo (-5.3%).
The Sales Price to List Price Ratio in Bay Area was 104.4% signaling a competitive seller’s market. Anything over 100% gives sellers an upper hand in price negotiations. The housing supply remains tight. The unsold inventory index now sits at around 8 weeks, which means it would take about 60 days to squeeze away all the listings from the market at the current sales pace.
Data by CAR
Below is the latest tabulated housing market report for the entire Bay Area released by the California Association of Realtors. The tabulated report shows the sales and prices of the Bay Area counties for June 2022. Much of the Bay Area real estate market remains firmly in “seller’s market” territory with months of supply of available single-family homes being about eight weeks at the current pace of sales.
Source: CAR.org
San Francisco County Housing Market Trends (Resales | Rents | Condos)
Tech hubs like San Francisco and San Jose have drawn substantial homebuyer demand over the years but San Francisco’s infamously hot real estate market saw an outward migration due to the pandemic. People were leaving the city, increasing demand in the suburbs. The value of suburban single-family homes is skyrocketing, while rents and pricing in tech hubs are falling. Recent market trends indicate that the market is reviving and will most likely heat up again in the coming months.
In June 2022, the existing single-family home sales growth was negative in SF county.
The closed sales were down by 21.3% from the previous year and 14.6% from the previous month, according to C.A.R.
The median price for a single-family home in San Francisco County was $1,900,000, down 2.6% YTY and 5.7% MTM.
Last month’s median price in San Francisco was $2,015,000.
Last year’s median price in San Francisco was $1,950,000.
In California, San Francisco and Los Angeles are the top markets for outward migration, for both permanent and temporary moves during the pandemic. Rents and condominium prices are expected to grow over the next twelve months, according to most analysts. Lesser-known areas with greater space, such as the Richmond, Sunset, and West Portal, are becoming increasingly popular for single-family homes.
Rents were falling in many major cities across the country due to the pandemic, but the drop was most pronounced in San Francisco, one of the nation’s priciest housing markets. After the pandemic began in March 2020, rent went into free fall in almost every major city on either coast as well.
When the vaccine rollout began in January 2021, cities on the East Coast saw rents rise back to where they were before the pandemic. But on the West Coast, prices have only risen incrementally, leaving the Bay Area and Seattle still well below where they were before the pandemic began. As of June 2022, San Francisco ranks as the most expensive city in Bay Area with median rent at $3,000 for a one-bedroom and $3,950 for a two-bedroom apartment (source: Zumper).
According to latest rental report by Realtor.com, in 38 of the 50 largest US metros, the monthly cost of renting a home is lower than buying a starter home. Low unemployment is correlated with strong rent growth. The 5 metros with the highest growth in the cost of living have an average gap between buying and renting of just $373, or 16.6% of monthly rent.
In the low-inflation metros like San Francisco and Los Angeles, the cost of living was already high and the choices for housing were already sparse, so in-migration has not added fuel to the inflation fire. In May 2022, the overall median rent in San Francisco-Oakland-Hayward, CA was $3,171, a gain of 12.6% YoY (source: Realtor.com) The monthly cost of purchasing the property was $5,705, which was greater than the monthly cost of renting by $2,535 (or 79.5%).
San Francisco has seen some of the biggest pandemic-related disruptions. It is now the second most expensive city to rent after New York. It has fallen behind New York in average one-bedroom rent, with New York at $3,950 and San Francisco at $3,095. More than two-thirds of apartments in San Francisco cost over $3,000 per month.
As of July 24, 2022, the average rent for a 1-bedroom apartment in San Francisco, CA is $3,095. This is an 15% increase compared to the previous year. Over the past month, the average rent for a studio apartment in San Francisco increased by 4% to $2,195. The average rent for a 1-bedroom apartment increased by 3% to $3,095, and the average rent for a 2-bedroom apartment increased by 6% to $4,195.
The average rent for a 2-bedroom apartment in San Francisco, CA is currently $4,195. This is an 11% increase compared to the previous year.
The average rent for a 3-bedroom apartment in San Francisco, CA is currently $4,950. This is a 10% increase compared to the previous year.
The average rent for a 4-bedroom apartment in San Francisco, CA is currently $5,995. This is a 2% increase compared to the previous year.
According to data by Apartmentlist, the expensive neighborhoods in San Francisco are Pacific Heights ($3,799), Mission Bay ($3,708), and Northern Waterfront ($3,606). The most affordable neighborhoods in San Francisco are Nob Hill ($3,393), Lower Nob Hill ($2,892), and Tenderloin ($2,515).
0% of apartments in San Francisco cost less than $1,000 per month.
7% of apartments in San Francisco cost between $1,000-$1,999 per month.
22% of apartments in San Francisco cost between $2,000-$2,999 per month.
71% of apartments in San Francisco cost over $3,000 per month.
San Francisco Condo/Townhomes Market Trends: A Big Growth in Sales
The high inventory levels for condos and townhomes in San Francisco county have made it favorable for condo buyers. The current unsold condo inventory index is 3.6 months and the sustained supply is finally lowering the median prices of condos. People simply no longer wish to live in densely populated areas, especially apartment buildings where they have to share common areas. They want enough space for a home office or two and their own outdoor space as well.
The current median price for a condo in San Francisco County is $1,250,000, which is the same as last year. The price is up 2.0% from the last month’s median price of $1,225,000. Due to the pandemic lower prices of SF condos were driving more sales. In June 2021, it saw a massive growth of 216.2% year-over-year. In December 2021, condo sales increased by almost 44.4% year-over-year.
However, in January 2022, the rate of sales growth declined as buyers seem to be pulling out for a while. Condo sales in SF county decreased by 29.5% as compared to January of last year. In February 2022, sales were slightly up by 2.2% from last year, and in March 2022, the sales declined by 13.0%. However, in March, the month-to-month sales growth was nearly 58 percent.
In April 2022, condo sales in SF county declined by 11.5% YoY and 0.8% MoM. In May 2022, condo sales declined by 13.2% YoY and 2.7% MoM. As of June 2022, condo sales declined by 32.7% YoY and 16.3% MoM. It is seeing higher levels of inventory with a significantly larger jump than in the surrounding suburbs. San Francisco had an unusually low inventory relative to other large cities before the pandemic. You can expect more condo listings in the second half of 2022. It could be an opportunity for those that have been wanting to buy a condo for a while and were previously priced out.
Infographic Source: CAR.org
San Francisco Bay Area Housing Market Forecast 2022 – 2023
San Francisco Bay Area consistently ranks among the most expensive real estate markets in the world, and it is one of the most densely populated cities in the U.S. The Bay Area housing market consists of all nine counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma) and 101 municipalities. The region is home to three major cities: San Francisco, Oakland, and, the largest, San Jose.
San Francisco’s real estate market is shaping up to continue the trend of the last few years as one of the hottest markets in California. What are the San Francisco real estate market predictions for 2022 to 2023? Let us look at the price trends recorded by Zillow over the past few years. Since the last decade (June 2012), the San Francisco County home values have appreciated by nearly 121% — Zillow Home Value Index.
As you can see in the graph given below, the San Francisco & Bay Area home values increased consistently, from 2012 through 2018. After that, it marked the beginning of a flattening out of prices which lasted for over a year. From April 2020 to Dec 2020, there was a consistent decline in SF home values.
After that, the prices have been rising back again. ZHVI is not the median price of homes that are sold in a month within a geographic region. It is calculated by taking all estimated home values for a given region and month (Also called Zestimates), taking a median of those values, and applying some adjustments to account for seasonality or errors in individual home estimates.
It, therefore, represents the whole housing stock and not just the homes that list or sell in a given month. By this calculation, the current typical home value of homes in San Francisco County is $1,649,663 (May 2022). It indicates that 50 percent of all housing stock in the area is worth more than $1,649,663 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).
In May 2021, the typical value of homes in San Francisco County was around $1.47 million. Home values have gone up 12.4% over the last twelve months. San Francisco’s appreciation rates have lagged behind the rest of the country over the last year. San Francisco’s appreciation rate over the last twelve months has been 12.22 percent, which is lower than the appreciation rate in the majority of American communities.
According to NeighborhoodScout’s data, house appreciation rates in San Francisco were 4.47 percent in the most recent quarter, equating to a 19.10 percent annual appreciation rate. It shows a home price appreciation forecast of more than 20 percent over the next twelve months.
The typical value of homes in San Francisco-Oakland-Hayward Metro (Bay Area) is $1,500,189, up 18.5% over the past year. Here are Zillow’s latest home price projections for the Bay Area and its counties. The exact rate of appreciation for the counties for the next twelve months is not available as we write this.
However, you can gauge it by looking at the past trends shown in the graph. Due to the supply-demand imbalance, property appreciation is certain in 2022. If mortgage rates remain higher than last year’s average, it can play an important role in the moderation of price growth. For current homeowners and those looking to sell, there is a lot of money to be made as housing prices have increased in all the counties.
Bay Area (San Francisco-Oakland-Hayward Metro) home values have gone up 18.5% over the past year and they are expected to continue to rise by 7% by May 2023 (ZHVI).
San Francisco County home values have gone up 12.4% over the past year but they are expected to increase in the next twelve months.
Alameda County home values have gone up 20.9% (current = $1,290,434) over the past year and they will continue to rise in the next twelve months.
Contra Costa County home values have gone up 20.5% (current= $994,183) over the past year and they will continue to rise at a similar pace in the next twelve months.
Marin County home values have gone up 20.9% (current = $1,689,483) over the past year and they will continue to rise at a similar pace in the next twelve months.
Napa County home values have gone up 15.7% (current = $932,911) over the past year and they will continue to rise at a similar pace in the next twelve months.
San Mateo County home values have gone up 17.5% (current = $1,783,114) over the past year and they are expected to rise at a faster pace in the next twelve months.
Santa Clara County home values have gone up 22.4% (current = $1,712,709) over the past year and they will continue to rise at a similar pace in the next twelve months.
Solano County home values have gone up 18.2% (current = $624,913) over the past year and they will continue to rise at a similar pace in the next twelve months.
Sonoma County home values have gone up 12.6% (current = $829,252) over the past year and they are expected to rise at a similar pace in the next twelve months.
Here is the graphical representation of historical home prices since the last decade.
Credits: Zillow.com
Despite the ongoing health and economic crisis caused by the COVID-19 pandemic, the San Francisco housing market made a large recovery in sales from the steep declines. As affluent buyers are least affected by the economic downturn, they are seen to have been jumping back into the market to a greater degree than other segments. High-end luxury real estate has seen a very strong demand in virtually every housing market in the entire Bay Area.
The pandemic & economic shutdowns have not had much impact on this housing market. The buyer demand has been significantly high as is reflected in the latest housing data. Despite high rates of unemployment and an economic downturn, housing has held onto its value in the San Francisco Bay Area. As the Bay Area employs a high number of skilled workers with college degrees, its unemployment rate is lower than other areas of the United States, and its housing market is holding strong.
The high-end buyer activity has pushed the median price to an all-time high. More affluent buyers having the greatest financial resources have been jumping back into the market to a greater degree than other segments. In a balanced real estate market, it would take about five to six months for the supply to dwindle to zero.
In terms of months of supply, San Francisco, or the entire Bay Area housing market can become a buyer’s real estate market if the supply increases to more than five months of inventory. And that’s not going to happen. Because of a persistent imbalance in supply and demand, the entire Bay Area region is heavily skewed toward sellers.
In June, the inventory of available single-family homes increased to 2.0 months. The bad news for buyers in San Francisco and the rest of the Bay Area is that mortgage rates are increasing when compared to last year’s average rate. Still is a good time for them to enter the market and seize their favorite deals, as rising rates will have an impact on housing affordability in the future.
Real estate market forecasts given in this article are just an educated guess and should not be considered financial advice. Real estate prices are deeply cyclical and much of it is dependent on factors you can’t control. Many variables could potentially impact the value of a home in San Francisco in 2022 (or any other market) such as big changes in the distressed, new-construction, or luxury home segments. There are also a wide variety of economic and political factors that can and do impact real estate markets. Most of these variables are difficult to predict in advance.
San Francisco Real Estate Investment Overview 2022
Should you consider San Francisco real estate investment? Many real estate investors have asked themselves if buying a property in San Francisco is a good investment as the median price for a two-bedroom sits at $1.35 million. The high cost of real estate in San Francisco is impossible for most families to manage. Exodus is yet another problem and a new report confirms that the numbers are staggering. Online real estate company Zillow released new statistics shining a stark light on the issue this week.
Their “2020 Urban-Suburban Market Report” reveals that inventory has risen a whopping 96% year on year, as empty homes in the city flood the market like nowhere else in the country. Although this article alone is not a comprehensive source to make a final investment decision for San Francisco, we have collected some evidence-based positive things for those who are keen to invest in the San Francisco real estate market. If you can afford it, then it’s an investment that will continue to increase in value over time.
Due to low-interest rates in 2021, there was an influx of high-end luxury buyers, with certain instances where homes have been sold for $1 million over asking. Let’s talk a bit about San Francisco and the surrounding bay area before we discuss what lies ahead for investors and homebuyers. San Francisco is home to nearly 900,000 people. It is the hub of the San Jose-San Francisco-Oakland area; this larger metro area is home to nearly nine million people.
The city alternately makes the news for people paying incredibly high rents to live in boxes, the homeless problem, and the tech industry. This makes many think about why or how anyone could live there. Others would think why you’d want to buy a property now in such an overvalued real estate market. Yet we can give you ten positive signs about the San Francisco housing market. Keep on reading to find out more. Why is housing so expensive in San Francisco?
First of all, the entire state of California has a consistent housing shortage due to limited land. Most of the cities including San Francisco are failing to meet the regional housing needs. New construction permits in all cities often lag due to community resistance which blocks new housing. Jobs are increasing and the economy is the strongest in 50 years. But due to the tight supply of homes, San Francisco home prices have grown much faster than incomes.
The minimum annual income required for owning a house in the San Francisco bay area in 2019 was $197,970. That’s an increase of 119.1% since 2012 when affordability was at its peak. Homeownership is not rebounding anytime soon in San Francisco. By 2025 more than 60% of the population is estimated to rent. Housing affordability has been a consistent issue for first-time buyers over the last few years. They have limited options in the San Francisco housing market.
Although mortgage rates have decreased, big down payments & all-time high home prices aren’t spurring more sales. Many simply can’t afford to buy a house due to these factors. Despite Covid-19, in the latest quarter, the San Francisco real estate appreciation rate has been around 0.21%, which amounts to an annual rate of 0.84%. Some experts feel that home prices may drop by 1 to 2% in the next twelve months.
This is a good sign for new homebuyers and investors as far as affordability is concerned as many of them can’t afford to buy a median-priced home in San Francisco. We shall discuss some more important reasons why you may want to consider buying San Francisco investment properties for the long-term buy and hold.
San Francisco’s Strong Economy Propels Real Estate
Why doesn’t everyone just move out of the San Francisco housing market? Some do move, but they have a one and a half to two-hour commute each way to work because they still want to work there. They just can’t afford to live there. Moreover, it is the high-tech job market that draws so many people to San Francisco and leaves many others struggling to pay the bills. San Francisco is turning into a major international city. It is a white-collar city, with fully 90.74% of the workforce employed in white-collar jobs, well above the national average.
In a report published by Google in June 2019, it announced one billion dollars of investment in housing across the Bay Area. A 10-year plan to add thousands of homes to the Bay Area. The company would be making this major investment in what it believes is the most important social issue in the bay area real estate market.
This proposition by Google will add thousands of new homes to the Bay Area real estate market over the next ten years. About $750 million would be used for repurposing Google’s own commercial real estate for residential purposes. This will allow for 15,000 new homes at all income levels in the Bay area. Another $250 million investment fund would be utilized to provide incentives to enable developers to build at least 5,000 affordable housing units across the Bay area housing market.
As a move to support affordable housing initiatives these investments will help Google plans to give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement of citizens. The company also plans to fund community spaces that provide free access to co-working areas for nonprofits, improve transit options for the community, and support programs for career development, education, and local businesses.
As it is the epicenter of the technology industry, there are a lot of people with an immense amount of wealth. Wealth isn’t just limited to the uber-wealthy founders of major tech companies or successful VCs but also the general workforce, whose salaries and incomes are among the highest in the world. Overall, San Francisco is a city of professionals, managers, and sales and office workers. Also of interest is that San Francisco has more people living here who work in computers and math than 95% of the places in the US.
The predicted 2020 job market slowdown won’t result in layoffs, just a drop in job growth to 1.5 to 2 percent a year. Note that the area already has an unemployment rate of 1.2 percent below the national average. The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 1.8 percent in December 2019, down from a revised 1.9 percent in November 2019, and below the year-ago estimate of 2.1 percent.
This compares with an unadjusted unemployment rate of 3.7 percent for California and 3.4 percent for the nation during the same period. An upcoming recession is likely to have a limited effect on the SF Bay Area’s housing market. It will only temper housing price appreciation but not reduce it. These solid economic fundamentals are integral to maintaining high rental property demand and ensuring a good return on investment.
San Francisco Rental Market
You may read about the growth of Portland and other Pacific Northwest cities as talent and businesses flee the expensive San Francisco real estate market. That’s hardly impacted the San Francisco housing market, though. However, San Francisco has several advantages over its Oregon rivals, and that’s the fact that you aren’t in Oregon. Oregon passed a state-wide rent control law in 2019. This is in addition to many city regulations regarding affordable housing. In Oregon, your ability to raise rents is limited by the state.
Making matters worse, there are many more renters than property owners, so they’ll tighten the allowable rental increases and continue to hamper owners until they’re losing money. And then there is California. You can find a variety of rent control laws in the San Francisco housing market because every city takes its approach to the problem. This means that you can find suburban San Francisco rental properties where you could raise rental rates to match the market. Furthermore, rent control laws typically don’t apply to newer single-family homes.
California, on the whole, is unfriendly to landlords. It is challenging to evict people. It can take a long time to evict someone who occasionally pays the rent. Taxes are high. What does this do to the San Francisco housing market? It leaves open the possibility that you could snap up San Francisco rental properties at a relative bargain price by people who just want to quit, whether they want to sell the properties or leave the state. For example, the laws governing the San Francisco real estate market allow you to buy San Francisco rental properties and evict the tenants to turn the units into condos for sale.
SF Rental Statistics
San Francisco holds the position of the priciest rental market. It is still #1 among the top 5 rental markets in the nation. The average rental income for traditional San Francisco investment properties is well above the national average. Like most of the Bay Area, the percentage of people renting in San Francisco is more than owners. San Francisco has around 56 percent of its residents living in rental homes.
If condo prices are going to drop or remain flat in 2021, people will see a good investment opportunity. They’ll be able to get in at a good price and there will be an increase in demand. If you’re in the market for a condo in San Francisco, that means you could get a great deal. According to several rent reports (discussed above), rental price declines have hit the bottom and are almost flat as compared to the previous month.
San Francisco’s Geography & Zoning Restrictions Limits inventory
San Francisco real estate market is perpetually constrained in terms of inventory. Several factors contribute to this, but principally the strict zoning laws prevent new development and high-rise construction throughout the city. The strict zoning laws, coupled with the fact that the SF is only seven by seven miles, make it a very constrained market and keep supply perpetually low. San Francisco sits on a peninsula, surrounded on three sides by water.
They cannot build to meet housing demand. The surrounding cities are densely built up, as well. The only way the San Francisco real estate market could meet demand is by ripping out large swaths of two and three-story buildings to build condo towers, but that’s almost impossible given local regulations. The ability to build up is limited in the surrounding suburbs because of the mountains.
The San Francisco real estate market is, for better or for worse, beholden to several competing interest groups. For those with money that own their homes and have the most influence, “not in my backyard” or NIMBY means that voters fight any proposal to replace a 2 or 3-story warehouse with a 20-story apartment or condo building. They want to protect the look and feel of the community, and through high-rise construction could start to relieve the overcrowding in the San Francisco real estate market.
The horrific stories of developers going through four years of red tape to build multi-family San Francisco rental properties deter others from even trying. Ironically, this creates significant returns for those who buy up San Francisco rental properties and can convert them to multi-family housing.
San Francisco’s Environmental Movement
The environmentalist movement and California are intertwined in the public’s mind and for good reason. This is the best demonstration of its impact in Marin County. An estimated 85 percent of the county is off-limits to development. This doesn’t mean there are no homes here. It means that there are large estates that cannot be turned into tract homes. Neighbors fight any such project. This is why George Lucas had to threaten to build hundreds of homes on Skywalker Ranch when they wouldn’t let him expand his studios there. This also explains why the San Francisco real estate market cannot solve its affordable housing crisis by building in the relatively open lands in Marin County.
Warehouses and factories have been converted to lofts in large, established cities around the world. They offer open spaces, high ceilings, and proximity to public transit and downtown amenities. San Francisco is no exception to this trend. The difference is the growth in high-density San Francisco rental properties as can only be found in co-living spaces. These can be considered high-end dorms.
People may rent a bunk bed and storage space for their possessions, gaining access to laundry, kitchen, and workout facilities. Several people may share a bedroom that rivals a cramped college dorm room. These facilities are booming because they cater to the new college graduates already used to living this way and willing to continue to do so to work for Big Tech firms in San Francisco.
San Francisco’s Luxury Real Estate Market is Booming Despite Pandemic
Dealing in the luxury real estate market has its benefits. More affluent buyers are the demographic least affected by any economic crisis such as brought up by the Covid-19 pandemic as they have the greatest financial resources. Although home prices soaring there is an influx of wealthy buyers. A relatively high percentage of the buyers in the city are all cash (Around 40 to 60 percent of them). Those that aren’t paying all cash are putting at least 20 percent down with the ability to close fast, even with a loan.
In June, house values in California city reached a record monthly high of $1.8 million. Deep-pocketed home buyers across San Francisco bolstered the market’s rebound and pushed up transactions and house prices, according to a report Monday from Compass. The number of luxury single-family homes—defined by the report as those priced at $3 million and above—that accepted an offer in June surpassed 30, the highest level the metric has reached in two years, data from the brokerage showed.
The increase helped push San Francisco house values to a record monthly high of $1.8 million in June, 3% higher than the previous peak of $1.75 million in June 2019. You will find first-time homebuyers who are buying over $2.5 million or baby boomers looking for second homes in the $2 million range. New units are being built in the San Francisco housing market. However, the reality is that the pool of people who can afford to buy is smaller and smaller and the supply of housing is not growing with demand. They mostly consist of luxury condos and mega-mansions built for the elite of the Big Tech workforce.
Another unintended side effect of regulations on San Francisco rental properties is that it incentivizes the construction of high-end units. Investors could invest in these projects or buy properties in the hopes that they are torn down and redeveloped. This is why burned-out husks can sell for hundreds of thousands of dollars and ones with demolition permits can sell for a million or more.
San Francisco’s Real Estate Appreciation Rate is High
Thanks to all the factors discussed above, the entire bay area has one of the highest appreciation rates. A major reason San Francisco’s housing prices have climbed so high over the past decade is the city’s vibrant tech industry, which started booming in 2012 (thanks, in part, to a tax incentive aimed at attracting tech companies to the city over Silicon Valley). It now attracts a skilled workforce to the city while also driving up the demand for housing and the cost of living.
The data from NeighborhoodScout reveals that San Francisco real estate appreciated 100.33% over the last ten years, which is an average annual home appreciation rate of 7.20%. This figure puts San Francisco in the top 10% nationally for real estate appreciation. And within San Francisco, some individual neighborhoods’ home values have jumped by more than 100%, according to Trulia & Zillow. Here are the five San Francisco neighborhoods that have had the biggest jump.
Bayview: Bayview had a $424,900 median home value in April 2009, which went to $1.07 million in Jan 2020. The current value is $1,004,025 (Zillow Home Value Index).
The Forest Knolls: In April 2009, the neighborhood’s median home value was $811,800, and it topped $1.8 million in Aug 2018. The current value is $1,895,032, up 11% YTY.
Bernal Heights: This neighborhood went from a median home value of $715,000 in April 2009 to $1.66 million in Aug 2018. The current value is $1,684,994, up 7.5% YTY.
Mission: This East of The Castro neighborhood is in central San Francisco. The median home value was $699,900 in April 2009 and $1.53 million in Dec 2019. The current value is $1,420,188, up 1.8% YTY.
Potrero Hill: This neighborhood lies in the East of the Mission District. It has a median home value of $734,200 in April 2009 and it topped $1.59 million in Sep 2020. The current value is $1,528,254, up 2.1% YTY.
The good news is that if you are a home buyer or real estate investor, San Francisco has a track record of being one of the best long-term real estate investments in the nation over the last ten years. So if you bought a home in San Francisco 10 years ago, it’s very likely you’d have profited on the deal by now — in fact, in several neighborhoods, you would have a good chance at doubling your money. All the variables that contribute to real estate appreciation continue to trend upwards which makes investing in SF real estate a sound decision.
Where To Invest In San Francisco Real Estate Market?
Are you looking to buy an investment property in the San Francisco real estate market? California has the 6th largest economy in the entire world. This is largely driven by its innovative production, the heavy tech sectors in the state, and more. The San Francisco market is expensive, but that doesn’t mean it is overpriced. There are opportunities, though they come with risks. If the city had better leadership and more people willing to allow redevelopment on a large scale, the city could blossom.
Good cash flow from San Francisco investment property means the investment is, needless to say, profitable. A bad cash flow, on the other hand, means you won’t have money on hand to repay your debt. Therefore, finding the best investment property in San Francisco in a growing neighborhood would be key to your success.
If you invest wisely in San Francisco real estate, you could secure your future. If you are a beginner in the business of cash flow real estate investing, it is very important to read good books on real estate. The less expensive the San Francisco investment property is, the lower your ongoing expenses will be.
When looking for the best real estate investments in San Francisco, you should focus on neighborhoods with relatively high population density and employment growth. Both of them translate into high demand for housing. San Francisco home prices are not only among the most expensive in the state of California but they are also some of the most expensive in all of the United States. According to Realtor.com, Dolores Heights has a median listing price of $2.5M, making it the most expensive neighborhood.
Some of the popular neighborhoods in and around San Francisco are South Beach, Pacific Heights, Mission District, Presidio Heights, Excelsior, St. Francis Wood, North Beach, West Portal, Outer Sunset, Hayes Valley, Portola, Dogpatch, Bernal Heights, Noe Valley, and Russian Hill.
According to Financialsamurai.com, the best neighborhood to buy property in San Francisco is Golden Gate Heights. This neighborhood has many homes with ocean view properties (under $1,000/Sq Ft), and some of the best schools in SF. Golden Gate Heights consists of mainly single-family homes instead of condos. As a result, the neighborhood is family-friendly and much less dense than other areas of San Francisco. The neighborhood is relatively inexpensive. At an average price per square foot of $850 – $980, Golden Gate Heights is an absolute steal compared to other neighborhoods in San Francisco.
Other best neighborhoods to buy investment properties in San Francisco are:
Inner Parkside, Parkside
Inner Sunset, Outer Sunset
Inner Richmond, Outer Richmond
Diamond Heights
All of these neighborhoods are safe, relatively inexpensive, and offer single-family homes for working-class people in the SF Bay Area. Single-family homes are defensive during downturns and tend to outperform during upturns.
Bernal Heights is considered an ideally located yet still moderately affordable place to raise a family. It’s on the south side of San Francisco, so it’s very easy to commute. The typical home value in Bernal Heights is $1,684,994. Bernal Heights home values have gone up 7.5% over the past year and this neighborhood will continue to rise in value.
Tenderloin is an affordable neighborhood for those who can afford to buy a home in the median price range of $679K, trending up 26% year-over-year. As of October 2021, the Tenderloin is a balanced real estate market, which means there is a healthy balance of buyers and sellers in the market. When housing supply meets housing demand, real estate investors should not miss the opportunity since entry prices of homes remain affordable.
Bayview is one of the most affordable neighborhoods, with a median listing price of $850K (on Realtor.com). Bayview saw an astounding 136% appreciation from 2000 to 2006, followed by a huge 50% drop from 2006 to 2010/2011. From 2012 onward the recovery has been consistent. The median listing home price in Bayview was $850K in October 2021, trending down -10.5% year-over-year. The median listing home price per square foot was $664. The median home sold price was $920K.
Median housing prices in Bayview are also still among the lowest of any neighborhood in the city, which attracts buyers looking to get a foothold in the rapidly appreciating Bay Area housing market. The markets in Bayview and nearby neighborhoods are quite strong because they contain the most affordable houses in the city. It has one of the highest appreciation rates in the SF Bay Area region. During the downturn, its housing market became dominated by distressed sales and it fell so far that now, with the disappearance of the subprime effect, its recovery has been equally dramatic.
Stoneridge Park is a neighborhood in Pleasanton, California. It lies in Alameda County—one of the nine counties of the Bay Area region. According to Niche.com, it is a family-friendly neighborhood and one of the best places to live in California. Living in Stoneridge Park offers residents an urban-suburban mix feel and most residents own their homes. In Stoneridge Park, there are a lot of restaurants, coffee shops, and parks. The public schools in Stoneridge Park are highly rated (A+). The median home value is $911,000 and the median rent is $2,572.
Parkside receives an overall grade of A from Niche.com. It is a neighborhood in San Francisco County and is also considered one of California’s best places to live. Living here offers residents an urban-suburban mix feel and most residents own their homes. The public schools in Parkside are highly rated. It is an expensive neighborhood with a typical home value of $1,631,675. Parkside home values have gone up 14.1% over the past year and they will continue to rise over the next twelve months.
Here are the top neighborhoods in San Francisco having the highest real estate appreciation rates since 2000—List by Neigborhoodscout.com.
Presidio Heights
Pacific Heights
Sea Cliff
Pacific Heights West
Cow Hollow West
Inner Richmond Northeast
Laurel Heights
Cow Hollow
Pacific Heights Southeast
Noe Valley North
California Real Estate Investment Markets
Apart from San Francisco, you can also invest in many other real estate markets in California. California’s real estate market is the focus of many U.S. and foreign real estate investors.
Another market to buy rental properties in California is San Jose. San Jose is part of Silicon Valley, a place where $100,000 a year or higher salaries from competing tech firms have driven up the cost of real estate. But what about the San Jose housing market itself? San Jose is the third-largest city in California, home to roughly a million people. It has the highest cost of living in any area in the U.S., and it is one of the most expensive housing markets in the country.
If you want to invest in the San Jose rental properties, you may not need to buy and renovate. Instead, if you know of industrial or commercial properties near major employers they may need to convert to employee housing, which you could buy now and hold until it sells. If that doesn’t happen, you could still turn it into a co-working space.
The San Diego real estate market offers an ideal mix of limited supply, high demand, and excellent income potential. If you’re going to invest in California, it needs to be in San Diego. The San Diego real estate market has been ranked among the ten most expensive real estate markets in the country, though it ranks below several other West Coast cities. This creates massive demand for San Diego rental properties by those who simply cannot afford to buy homes. The rental market will continue to grow as the city grows an estimated 500,000 by 2050, adding tens of thousands each year.
Another expensive market like San Francisco is LA. The numbers may not make sense for many investors but if you ask savvy investors based in LA they would like to bet anytime on this expensive real estate market. The Los Angeles real estate market has many points in its favor beyond its sheer size. The strong market fundamentals make the Los Angeles housing market a good place to invest if you’re looking at buying real estate in California.
Los Angeles has an unemployment rate of around 4%. What makes Los Angeles unique is the employment market. Want to work in Hollywood? Move to L.A. Want to work for a production company or in fashion? Come to L.A. If rent is too high, share an apartment or single-family home with friends. The Los Angeles housing market has seen a bump in residential construction. This has helped to satisfy some demand from renters. However, due to increasing demand, the new supply hasn’t brought prices down.
The Oakland real estate market is a cheaper version of the San Francisco real estate market with similar rental rates and a slightly friendly legal climate. It presents a good opportunity for real estate investors. The Oakland real estate market is second only to San Francisco in terms of rental rates. It is rivaling New York City, Boston, and San Francisco in terms of rental prices. One-bedroom apartments are averaging $2400 a month. Yet Oakland housing units remain two hundred to five hundred thousand dollars cheaper than San Francisco properties. This means you’ll see far better ROI on Oakland rental properties than San Francisco properties.
For most investors, buying or selling real estate is one of the most important decisions they will make. Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.
NORADA REAL ESTATE INVESTMENTS has extensive experience investing in turnkey real estate and cash-flow properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in many other growth markets in the United States. We can help you succeed by minimizing risk and maximizing the profitability of your investment property in San Francisco.
Consult with one of the investment counselors who can help build you a custom portfolio of San Francisco turnkey investment properties in some of the best neighborhoods. All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete San Francisco turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.
Please do not make any real estate or financial decisions based solely on the information found within this article. Some of the information contained in this article was pulled from third-party sites mentioned under references. Although the information is believed to be reliable, Norada Real Estate Investments makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. All information presented should be independently verified through the references given below. As a general policy, Norada Real Estate Investments makes no claims or assertions about the future housing market conditions across the US.
References:
Market Data, Reports & Forecasts
https://www.car.org/en/marketdata/data
https://www.zillow.com/sanfrancisco-ca/home-values
https://www.zillow.com/research/2020-urb-suburb-market-report-27712/
https://www.littlebighomes.com/real-estate-san-francisco.html
https://www.realtor.com/realestateandhomes-search/SanFrancisco_CA/overview
https://www.bayareamarketreports.com/trend/san-francisco-home-prices-market-trends-news
San Franciso (City) Cooling-off
https://www.cnbc.com/2020/09/27/san-francisco-housing-suburbs-red-hot-but-city-still-in-demand.html
City details
http://worldpopulationreview.com/us-cities/san-francisco-population
Best Neighborhoods
https://www.neighborhoodscout.com/ca/san-francisco/real-estate
https://www.helena7x7.com/san-francisco-neighborhood-appreciation-rates/
Best San Francisco Neighborhoods To Buy Property For Price Appreciation
https://www.niche.com/places-to-live/search/best-neighborhoods-to-buy-a-house/m/san-francisco-metro-area/
Rental Market Statistics
https://www.rentcafe.com/average-rent-market-trends/us/ca/san-francisco/
https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends/
https://www.nolo.com/legal-encyclopedia/california-rent-control-law.html
https://homeguides.sfgate.com/tenants-rights-landlord-sells-house-53734.html
https://www.npr.org/2019/02/27/698509957/oregon-set-to-pass-the-first-statewide-rent-control-bill
Should You Invest in SF
https://realestate.usnews.com/places/california/san-francisco/jobs
https://sf.curbed.com/2020/3/11/21155283/buying-a-house-san-francisco-2020
https://reason.com/2018/02/21/san-francisco-man-has-spent-4-years-1-mi
https://www.latimes.com/politics/la-pol-ca-marin-county-affordable-housing-20170107-story.html
https://www.citylab.com/equity/2016/04/blame-geography-for-high-housing-prices/478680
https://www.theguardian.com/business/2016/aug/05/high-house-prices-san-francisco-tech-boom-inequality
https://www.washingtonpost.com/news/morning-mix/wp/2015/04/17/george-lucas-wants-to-build-affordable-housing-on-his-land-because-weve-got-enough-millionaires
Luxury market
In the Bay Area, million-dollar homes are torn down to start fresh
https://www.sfgate.com/realestate/article/863-carolina-street-potrero-hill-tear-down-listing-13844146.php
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