This article has been updated to reflect recent changes in the San Francisco housing market. San Francisco 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.
SF Home sales fell to their lowest levels since 2009 in April and May and were also down significantly in June. San Francisco Bay Area housing market had the strongest sales growth in August with a more than 10 percent surge in sales from last year, which is an amazing recovery from the lows in May. This trend continued in September as well with 34.2 percent sales growth as compared to last year.
SF Bay Area home prices have also been climbing due to strong demand and low supply. After reaching near-record levels in July, the median price of single-family homes posted an increase of 20.5% year-over-year in September — the second-highest median price increase in the state of California.
The price decreased by -0.7% as compared to the previous month (August). In the San Francisco county housing market, the median sold price increased by 0.1% to $1,665,000, $2000 more than August's median price. Sales of single-family houses rose by a whopping 90.2% YTY. Sales also increased by 8.4% MTM.
Aggressive buyers are bidding up prices but as more supply becomes available, there could be a correction in the market. At the moment, much of the Bay Area housing market is skewed toward sellers with a stronger demand as compared to the supply of properties for sale. In September, there was a drop of -31.9% YTY in the active listings.
The unsold inventory index is 1.9 months. However, the San Francisco county area has been among the most recovered markets for new listings or housing supply components. The number of active listings has also seen a dramatic increase over the last few months, outpacing the increase in listings going into contract.
September 2020 report from Realtor.com shows that San Francisco is a balanced real estate market, which means that the supply and demand of homes are about the same. In September, the median list price of homes in San Francisco, CA was $1.4M, flat year-over-year. The median listing price per square foot was $1K.
The median sale price was $1.4M. Ideally, a buyer would prefer a sale to list price ratio that’s closer to 90 and a seller would always prefer scenarios that can yield a ratio of 100% or higher. The sellers in San Francisco have managed to hold good leverage in these negotiations in the past month. On average, they could sell homes for 100% of the asking price.
On average, homes in San Francisco CA sell after 47 days on the market. The trend for median days on market in San Francisco, CA has gone up since last month, and slightly up since last year.
A seller would always prefer scenarios that can yield a ratio of 100% or higher. On average, homes in the San Francisco area sell after 46 days on the market. The trend for median days on market has gone up since last month, and slightly up since last year.
According to Zillow's 2020 Urban-Suburban Market Report, in San Francisco, list prices have fallen 4.9% year over year and inventory has risen 96% with a flood of new listings. Higher levels of inventory, up 96% year-over-year following a flood of new listings during the pandemic, are sitting on the market in the city proper, a significantly larger jump than the surrounding suburbs.
In San Francisco, though, the softening is clear as sellers flood the market with their listings and buyers have not changed their pace to match. San Francisco had an unusually low inventory relative to other large cities before the pandemic. Regardless, the 96% year on year change in inventory marks a significant moment.
The same dramatic shift has not been seen in other large cities across the country, according to the report. New pending sales in the city are up only 1.7% year-over-year. An increasing no. of listings is cooling off the market. The result would be that sellers will have to compete for buyers. Let’s take a close look at the San Francisco Bay Area housing market trends and forecasts for 2020 & 2021.
San Francisco Bay Area Real Estate Market Forecast 2021 (Updated)
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 2020? According to Zillow, a real estate database company, the median home price in San Francisco has been pretty much flat since Aug 2018.
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.
The median home value of single-family homes and condos in San Francisco is currently holding at $1,405,199. The typical home value of homes in San Francisco-Oakland-Hayward Metro (Bay Area) is $1,113,664. (Zillow Home Value Index is seasonally adjusted and only includes the middle price tier of homes).
Here is the latest market forecast for the SF county and metro areas until September of 2021.
- San Francisco home values have gone up 0.9% over the past year and the latest forecast is that they will increase by 5.9% in the next twelve months.
- San Francisco County home values have gone up 0.9% over the past year and Zillow predicts they will rise 5.9% in the next twelve months.
- Bay Area (San Francisco-Oakland-Hayward Metro) home values have gone up 3.7% over the past year and Zillow predicts they will rise 7.2% in the next twelve months.
Here is the graphical representation of historical San Francisco & Bay Area home prices and the latest forecast until September 2021.
Here is another short and crisp San Francisco housing market forecast for the 3 years ending with the 3rd Quarter of 2021. The accuracy of this forecast for San Francisco is 77% and it is predicting a positive trend. LittleBigHomes.com estimates that the probability of rising home prices in San Francisco is 77% during this period. If this price forecast is correct, the San Francisco home values will be higher in the 3rd Quarter of 2021 than they were in the 3rd Quarter of 2018.
The change in home prices for San Francisco-Redwood City-South San Francisco, CA is shown below for the three-time periods by LittleBigHomes.com (up to 3rd Quarter, of 2018). The San Francisco Home Price Index has increased for the last 26 consecutive quarters. The all-time high in the San Francisco Home Price Index was 489.9 in the 3rd Quarter, of 2018. The Home Price Index indicates that the San Francisco Market is up 81% over the last 10 years.
Over the last thirty years, it is up 435%. The highest annual change in the value of houses in the San Francisco Real Estate Market was 28% in the twelve months ended with the 4th Quarter of 1979. The worst annual change in home values in the San Francisco Market was -12% in the twelve months ended with the 3rd Quarter of 2008.
|Time Period||San Francisco Real Estate Appreciation|
|Last 5 Years||68%|
|Last 10 Years||81%|
|Last 20 Years||289%|
The question now is what happens moving forward. These housing market trends and statistics can be positive or negative depending on which side of the fence you are — Buyer or Seller? While many have lost jobs, making them ineligible for a home mortgage, some sellers have taken their homes off the market. With the re-opening of the economy, the demand is rising again.
While buyer activity continues to be robust, the decrease in the number of active listings indicates that new sellers are still not willing to put their homes on the market until the pandemic or its threat is completely over.
There has been a short term impact of the Coronavirus pandemic on the Bay Area Housing Market—buyers withdrawing offers and sellers removing their homes from the market. The general uncertainty is playing a smaller role in recent weeks. There have been delays in closings due to financing issues as loan funding has slowed down.
Sales were down 28% from early March, statewide. According to the California Association of Realtors, there has been the biggest drop in housing starts in 1984. The pandemic, however, has not had much impact on prices yet. The buyer demand has significantly rebounded as is reflected in June's housing data.
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.
Nationally, the showing activity has notably increased from the depressed levels in recent months, reflecting pent-up demand by prospective home buyers. The fall season has become as active as the summer buying season.
Despite the ongoing health and economic crisis precipitated by COVID-19, the SF Bay Area real estate market made a large recovery from the steep declines in March and April. On a 4-month rolling basis, SF median house sales prices are as high as they’ve ever been.
The median condo sales price has also been running higher than the highs of last year. It posted an increase of 20.5% YTY in September. The condo market has been weaker than the single-family houisng market, as measured by both supply and demand metrics and median sales price.
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.
This entire Bay Area region is very much skewed to sellers due to persistent imbalance in supply and demand. In September, the inventory of available properties was holding at 1.9 months and there was a resurgence of the buyer demand to a new level. This will push the home prices up even though at a medium pace in the coming months.
To be noted is that the supply of listings in San Francisco County in August was is at its highest point in 8 years. As the market softens, correct pricing becomes increasingly critical for sellers. When that happens, the sellers will have to compete for buyers.
For buyers in San Francisco and the entire Bay Area, the good thing is that mortgage rates are at their lowest. Therefore, this is a good time for them to enter the market and scoop up their favorite deals.
Higher San Francisco home prices and economic recession have dampened housing affordability in second-quarter 2020. In the San Francisco Bay Area, affordability improved from second-quarter 2019 in every county, except Solano, which was unchanged.
San Mateo and San Francisco counties were the least affordable, tied at 19 percent of households able to purchase the median-priced home. Forty-six percent of Solano County households could afford the $485,000 median-priced home, making it the most affordable Bay Area county, according to C.A.R.
So they should take advantage of scooping up their favorite deals which otherwise are taken away by seasoned investors in the bidding wars. Whether you’re looking to buy or sell, timing your local market is an important part of real estate investment.
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 2020 (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.
Bay Area Housing Market 2020 Trends: Prices | Sales | Inventory
San Francisco is a fairly walkable city in San Francisco County having a mixture of owner-occupied and renter-occupied housing. According to Neighborhoodscout.com, a real estate data provider, one and two-bedroom large apartment complexes are the most common housing units in the San Francisco real estate market.
Other types of housing that are prevalent in the market include single-family detached homes, duplexes, rowhouses, and homes converted to apartments. Single-family detached homes account for roughly 20% of San Francisco's housing units. At the national level, the single-family rental homes have grown up to 30% within the last three years.
Almost all the housing demand in the US in recent years has been filled by single-family rental units. With 2020 being, theoretically, in the middle of a boom, there are still 4 years for residential construction to surge. Most likely, a housing shortage will remain in 2020, keeping home prices high.
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, improving transit options for the community, and supporting programs for career development, education, and local businesses.
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 in March and April. The median sold price hit a new monthly high in June ($1,800,000).
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 Bay Area housing markets with the largest year-over-year increases in the number of listings accepting offers in June 2020 were the 4 outer Bay Area counties of Monterey (up 61%), Santa Cruz (58%), Sonoma (47%), and Napa (37%). They also have among the lowest population densities in the Bay Area.
The more urban counties saw more modest year-over-year increases: San Francisco (6%) and Alameda (7%). Other factors may play a role in this: length/strictness of shelter-in-place rules, home price differences, second-home buying patterns, and so on.
Home sales declined by 7.8% from the prior year but there was a gain of 69.2% as compared to the previous month (May). The median sold price of existing single-family homes in the San Francisco Bay Area housing market was $1,000,000, a year-over-year rise of 4.2%, according to C.A.R.
Bay Area Housing Market Report (September 2020)
The Bay Area housing market consists of all the 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.
Below is the latest tabulated housing market report for the entire Bay Area release by the California Association of Realtors. The tabulated report shows the sales and prices of the Bay Area counties for September 2020.
Much of the Bay Area real estate market remains firmly in “seller's market” territory with months of supply of available properties being less than 2. In September, inventory or active listings declined by -31.9%. The home prices increased in September compared to last year in all the nine counties of SF Bay Area.
All nine counties posted an increase in year over year sales. Sales of houses throughout the Bay Area increased by 2.6% month to month and 34.2% year to year. San Francisco, Marin, San Mate, Santa Clara, and Contra Costa enjoyed the largest sales growth year to year. The highest sales came from San Francisco county with an increase of 90.2% from the previous year.
Bay Area home prices dropped by $8,000 from August to $1,060,000, down by -0.7% in September. Prices are up 20.5% more than last September which represents a big growth of $180,000. The highest price growth also came from Central Coast county with an increase of 42.0% from the previous year.
|September-2020||Median Sold Price of Existing Single-Family Homes||Sales|
|S.F. Bay Area||Sep-2020||Aug-2020||Sep-2019||Price MTM% Chg||Price YTY% Chg||Sales MTM% Chg||Sales YTY% Chg|
San Francisco County Housing Market 2020 Summary
The San Francisco housing market was more deeply affected by COVID-19 and shelter-in-place than other more suburban county markets, seeing larger initial drops in real estate activity. Even with the great rebound of buyer demand from May onward, its recovery is lagging from other counties of the Bay Area on a year-over-year basis.
Home sales in May mostly reflect the huge impact of COVID-19 on the San Francisco housing market in late March and April. Median sales prices for both houses and condos dropped significantly in San Francisco in May, but those figures are based on a very low volume of closed sales in the month. An even bigger drop in higher-price home sales also put downward pressure on median prices.
Rent rates appear to be dropping quickly, after the enormous increase in unemployment – which typically impacts the rental market more rapidly and significantly than the for-sale market. Buyer demand has come surging back and home prices have so far been little affected.
Inventory remained tight in June as well. There's a big rebound in buyer demand, as the number of listings accepting offers in June 2020 rose slightly higher on a year-over-year basis. Home sales (closed) are still lagging behind the prior year's numbers. While the median house price has hit a new peak, the median condo price has declined from its 2019 high.
While the median house price hit a new peak, the median condo price has declined from its 2019 high. In June, the median sold price of existing single-family homes in San Francisco increased by 2.4% to $1,805,000. More affluent buyers entered the market in June.
High-end real estate sales that staged a particularly strong recovery is one of the factors behind median house sales prices hitting a new peak in June. Home sales are still lagging begin 2019's stats. Closed sales saw a decline of 8.9% as compared to last year and an increase of 56.7% as compared to May 2020.
San Francisco Housing Market Report (September 2020)
Among Bay Area markets, San Franciso County saw extremely high demand in the month of September. The sales surged by 90.2% YTY — the highest among all the counties of the Bay Area. Single-family house prices rise by 8.1% to $1,665,000, $2000 more than August's median price.
In San Francisco, supply and demand conditions have diverged between house and condo markets, with the latter being far weaker and rapidly climbing into “buyer’s market” territory.
However, the condo market showed a suddenly increased buyer turnout in September. Sales of condos jumped by 63.1% YTY and 29.9 MTM. Condo prices in San Francisco declined by 7.8% to $1,221,000. As compared to the previous month, the median condo price declined by -4.2%.
|Existing SFR sales in September 2020 were up by +90.2% year-over-year.|
|Existing SFR Median Sold Price increased by 8.1% (YTY) to $1,665,000.|
|Unsold Inventor declined by -23.7% y-o-y to 2.9 Months.|
|Median Days on Market equaled 17, a decline of 2.9% year-over-year.|
|Sales-to-List Price Ratio: 104.5%|
|Percentage of Active Listings with price reduction: 25.7%|
San Francisco Real Estate Foreclosure Statistics 2020
Here are some foreclosure statistics of the San Francisco real estate market. As per the foreclosure data by Zillow, in San Francisco 0.1 homes are foreclosed (per 10,000). This is the same as the San Francisco-Oakland-Hayward Metro value of 0.1 and also lower than the national value of 1.2. The percent of delinquent mortgages in San Francisco is 0.2%, which is lower than the national value of 1.1%. The percent of San Francisco homeowners underwater on their mortgage is 2.6%, which is lower than San Francisco-Oakland-Hayward Metro at 2.7%.
There are currently 130 properties in San Francisco, CA that are in some stage of foreclosure (default, auction, or bank-owned) while the number of homes listed for sale on RealtyTrac is 741. In September, the number of properties that received a foreclosure filing in San Francisco, CA was 48% lower than the previous month and 58% lower than the same time last year.
Currently, the zip code with the highest foreclosure rate is 94124, where 1 in every 3826 housing units is foreclosed. So, there's a lot of distressed sellers in this area. 94133 zip code has the lowest foreclosure rate, where 1 in every 14906 housing units becomes delinquent.
|Potential Foreclosures in San Francisco||130 (RealtyTrac)|
|Homes for Sale in San Francisco||741|
|Median List Price||$1,395,000 (0% drop vs Aug 2019)|
San Francisco Real Estate Investment
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.
Amid low interest rates, there has been 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 wonders 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 2020. 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 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.
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 buy 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 flea 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. The average rental income for traditional San Francisco investment properties is well above the national average. According to Zumper.com, nationally, median rents continue to tick up during the summer moving season. Overall, the national one-bedroom rent increased 0.3% to a median of $1,233, while two-bedrooms grew 0.6% to $1,493.
On a year-to-date basis, one and two-bedroom prices are up 0.7% and 1%, respectively. In SF, one-bedroom rent dropped another 2.4% last month to $3,200, while two-bedrooms decreased 3% to $4,210. Notably, both one and two-bedroom rents are now down over 11% since this time last year. However, San Franciso is still #1 among the top 5 rental markets in the nation.
The percentage of people renting in San Francisco is more than owners. Around 52% of the households in San Francisco, CA are renter-occupied while 47% are owner-occupied. The average rent for an apartment in San Francisco is $3,629, a change amounting to approximately 0% compared to the previous year, according to RENTCafé. More than 90% of the apartments can be rented for $2,000 or more while less than 2% can fall in the rent price of less than $1,500.
The average size for a San Francisco, CA apartment is 747 square feet, but this number varies greatly depending on unit type, with cheap and luxury alternatives for houses and apartments alike. Studio apartments are the smallest and most affordable, 1-bedroom apartments are closer to the average, while 2-bedroom apartments and 3-bedroom apartments offer more generous square footage.
As of September 2020, the average rent for an apartment in San Francisco, CA is $3143 which is a 21.25% decrease from last year when the average rent was $3811, and a 6.81% decrease from last month when the average rent was $3357.
- One-bedroom apartments in San Francisco rent for $2940 a month on average (a 17.28% decrease from last year).
- Two-bedroom apartment rents average $3824 (an 18.78% decrease from last year).
- The average apartment rent over the prior 6 months in San Francisco has decreased by $624 (-16.6%).
- One-bedroom units have decreased by $471 (-13.8%).
- Two-bedroom apartments have decreased by $659 (-14.7%).
Some of the most affordable neighborhoods where the rent is below San Francisco's average rent price:
- Treasure Island, where the average rent goes for $2,616/month.
- Tenderloin, where renters pay $2,944/mo on average.
- Van Ness – Civic Center, where the average rent goes for $2,944/mo.
- Downtown District 8 – North East where the average rent goes for $2,956.
- Marina where the average rent goes for $2,974.
- Outer Sunset where the average rent goes for $3,117.
- Outer Richmond where the average rent goes for $3,117.
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, makes it a very constrained market and keeps supply perpetually low. San Francisco sits on a peninsula, surrounded on three sides by water.
They cannot build-out 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, 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 is 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 pushing 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 91.99% over the last ten years, which is an average annual home appreciation rate of 6.74%. 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. 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 $918,300 in April 2019.
- The Forest Knolls: In April 2009, the neighborhood’s median home value was $811,800, and it topped $1.7 million in April 2019.
- Bernal Heights: This neighborhood went from a median home value of $715,000 in April 2009 to $1,507,800 in April 2019.
- Mission: This East of The Castro neighborhood is in central San Francisco. The median home value was $699,900 in April 2009 and $1,460,800 in April 2019.
- 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 in April 2019 it was just over $1.5 million.
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 through 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. 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 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 median home value in Bernal Heights is $1,587,365. Bernal Heights home values have gone up 1.5% 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 $570K. As of June 2020, the Tenderloin was a balanced real estate market, which means there was 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 $944K (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. From Jan 2012 ($428,000) to June 2020 ($1.01M), the median home price has appreciated by a whopping 133% (As on Zillow's home price index). Bayview home values have gone up 4.7% over the past year alone.
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 the 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 as one of the best places to live in California. 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 median home value of $1,010,820. The median rent is $2,322. Parkside home values have gone up 4.9% over the past year and Zillow predicts they will fall -2.1% within the next year.
Here are top neighborhoods in San Francisco having the highest real estate appreciation rates since 2000—List by Neigborhoodscout.com.
- Garces Dr / Vidal Dr
- San Francisco State U / 19th Ave
- American Conservatory Theater / Bush St
- Golden Gate Ave / Leavenworth St
- Geary St / Taylor St
- Kearny St / California St
- Turk St / Taylor St
- Ofarrell St / Taylor St
- Montgomery St / Jackson St
- Golden Gate Ave / Market St
San Francisco, California Real Estate Investment Opportunities
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 for tech firms has 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, 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.
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.
Buying or selling real estate, for a majority of investors, 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.
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, the Norada Real Estate Investments makes no claims or assertions about the future housing market conditions across the US.
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