San Francisco, CA Real Estate Market Trends & Analysis [Updated 2021]

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The San Francisco real estate market has paced national trends for the better part of a decade. News coming out of the Bay Area is starting to sound like a broken record. The same high prices that flooded news outlets after the recovery began in 2012 are still making headlines in 2021. The headlines are well deserved; the Northern California market remains one of the most expensive markets on the planet. It is worth noting, however, that the city has begun to show signs of temperament.

In fact, in the first quarter of 2020, real estate in San Francisco has become synonymous with one of the country’s highest distributions of discounted sales. That’s not to say the San Francisco real estate market is relatively affordable, but rather that prices may be on the verge of a course correction. After years of historical appreciation, there appears to be little room left for price increases.

In addition to the city’s high prices, the introduction of the Coronavirus contributed to tempering appreciation rates. While COVID-19 has been nothing less than terrible for the economy, it appears to have been just what real estate in San Francisco needed. Fear and uncertainty left in the wake of the pandemic actually halted years of appreciation and brought prices back down to earth–albeit slightly.

Tapering sales prices should bode incredibly well for anyone looking to actively participate in the market, which begs the question: Is now a good time to buy a house in San Francisco? What do today’s high prices mean for local investors? More importantly, which San Francisco real estate trends will continue?

San Francisco Real Estate Market 2021 Overview

  • Median Home Value: $1,402,470

  • 1-Year Appreciation Rate: -2.5%

  • Average Days On Market (Zillow): 63

  • Median Rent Price: $4,500

  • Price-To-Rent Ratio: 25.97

  • San Francisco-Oakland-Fremont Unemployment Rate: 7.0% (latest estimate by the Bureau Of Labor Statistics)

  • San Francisco County Population: 881,549 (latest estimate by the U.S. Census Bureau)

  • San Francisco County Median Household Income: $112,449 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 9.83%

  • Foreclosure Rate: 1 in every 10,451 (0.9%)


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San Francisco real estate market trends

San Francisco Real Estate Investing 2021

The San Francisco real estate investing community has enjoyed quite a profitable run since the market’s recovery really took off in 2012. It is worth noting, however, that the success of investors was not unique to Northern California. In fact, real estate investors across the country have benefited from generous returns, especially in 2020. According to Attom Data Solutions’ third-quarter 2020 U.S. Home Flipping Report, “The gross profit on the typical home flip nationwide (the difference between the median sales price and the median paid by investors) rose in the third quarter of 2020 to $73,766 – the highest amount since at least 2000.”

Not surprisingly, the San Francisco real estate market was one of the few places pacing increases in raw profits across the country. Local home prices and demand landed San Francisco real estate investors towards the top of the list for the best places to flip homes in 2020. With an average profit of $158,500 per flip, San Francisco had the fifth-highest raw profits in the third quarter of last year, trailing only San Jose, CA (gross profit of $290,000); Ventura, CA ($180,000); Bridgeport, CT ($177,500); Los Angeles, CA ($161,500), according to the 2020 U.S. Home Flipping Report.

Few markets across the country have seen a meteoric rise in prices that can match the last eight years, which begs the question: Is San Francisco real estate a good investment? The answer is relatively simple: yes, under the right circumstances. The city’s high prices may deter some investors from pursuing local deals. Still, the same prices that may make it harder to invest have already generated a very impressive return on investment.

There is more than one way to invest in San Francisco real estate. In addition to exit strategies that would have investors sell their deals for a profit (wholesaling and rehabbing), long-term rental properties are perhaps more viable than ever before. For starters, San Fran is currently one of the few cities where it is actually cheaper to rent than own. With a price-to-rent ratio of 25.97, it is unequivocally more affordable to rent a house than to buy one. As a result, demand for rental space is historically high—all but ensuring landlords will rarely have to worry about vacancies. The resulting demand will also allow savvy landlords to increase rental rates, deciding to own rental properties even more viable in 2021.

If that wasn’t enough, the impact of COVID-19 on the real estate market made long-term investments more attractive. In particular, lower borrowing costs made it easier to digest the city’s high acquisition costs. In an attempt to stimulate the housing sector, the Fed announced it would keep rates near historic lows for the foreseeable future, and local investors are ready and willing to take advantage of the opportunity.

Investing in San Francisco real estate is, at the moment, incredibly expensive. However, the San Francisco real estate investing community has already proven that it is possible. Returns in the city are higher than just about everywhere else, and there’s no reason to think the trend won’t continue for the foreseeable future.

Foreclosure Statistics In San Francisco 2021

The San Francisco real estate market does not harbor a large foreclosure rate. Despite playing host to one of the country’s highest median home values, only one in every 10,451 homes conforms to the “distressed” description: default, auction or bank owned. In fact, the city’s 0.9% foreclosure rate is only slightly higher than that of the national average (which is currently around 0.7%).

Despite the low foreclosure rate, however, real estate in San Francisco has been slightly more susceptible to foreclosure filings in recent history. Due largely–in part–to the pandemic, more homeowners have fallen on harder financial times. Furloughs and job losses have taken away the income sources so many San Franciscans once depended on to pay their mortgages and rents. While it’s too soon to tell the extent of new foreclosure filings, it’s safe to assume they will increase over the course of 2021.

Today, the ZIP codes in the San Francisco real estate market with the highest distribution of foreclosures are:

  • 94127: In in every 3,996 homes is distressed

  • 94132: In in every 5,436 homes is distressed

  • 94124: In in every 5,739 homes is distressed

  • 94134: In in every 6,370 homes is distressed

  • 94123: In in every 7,622 homes is distressed

Foreclosures in San Francisco

Data Provided By RealtyTrac

Median Home Prices In San Francisco 2021

The San Francisco housing market is the most expensive market in the most expensive state. With a median home value of $1,402,470, the average value of a home in SF is more than one million dollars more than the median home value in the United States. However, it is worth noting that today’s home value is the result of nearly a decade’s worth of appreciation. Home prices have more than doubled since the depths of the last recession.

As recently as the first quarter of 2012, when the recession was in its waning moments, the median home value was around $680,000. To put things into perspective, that’s still more than the median home value in California is today (prices have always been high relative to adjacent markets). Nonetheless, real estate in San Francisco rode a wave of economic expansion and optimism for nine consecutive years, to the tune of a 106.2% appreciation rate.

Dating back even further (to the turn of the century), here’s a list of the neighborhoods that have appreciated the most (according to NeighborhoodScout):

  • 16th St / 3rd St

  • Golden Gate U-San Francisco / Mission St

  • Post St / Taylor St

  • U of California Hastings College of Law / Van Ness Ave

  • Ave D / 4th St

  • Kearny St / California St

  • California Institute of Integral Studies / Mission St

  • Farallon Islands

  • San Francisco State U / 19th Ave

  • Franklin St / Geary Blvd

Whether or not these are the best neighborhoods to invest in remains up for debate, but one thing is for certain: there is no denying the run they have had as of late. Each of these neighborhoods continues to show remarkable growth.

Local home values have had such a historic run, prospective buyers have been asking themselves the same question for years: Will the San Francisco housing market go down? If the start of 2021 is any indicator, the answer may be yes. The median home value in San Francisco has already dropped 2.5% in the last year, and Zillow is expecting a further depreciation. It is too soon to tell how much prices will drop, but this trend is clearly the result of too many years of appreciation.

The San Francisco real estate market stands on a pedestal all to itself. The high prices that have become synonymous with real estate in San Francisco have created a market unlike anywhere else. Nonetheless, there’s still plenty of space for profit margins to remain attractive for real estate investors. With a sound exit strategy, savvy investors can work with the area’s high acquisition costs to make even some of the most expensive deals worthwhile. Local demand supports a desirable rental market, which bodes incredibly well for well-positioned buy-and-hold investors.

Home values in San Francisco

Data Provided By Zillow

San Francisco Real Estate Market: 2020 Summary

  • Median Home Value: $1,392,859

  • 1-Year Appreciation Rate: +2.4%

  • Median Home Value (1-Year Forecast): 3.9%

  • Average Days On Market (Zillow): 61

  • Median Rent Price: $4,500

  • Price-To-Rent Ratio: 25.7

  • Unemployment Rate: 2.2% (latest estimate by the Bureau Of Labor Statistics)

  • San Francisco County Population: 883,305 (latest estimate by the U.S. Census Bureau)

  • San Francisco County Median Household Income: $104,552 (latest estimate by the U.S. Census Bureau)

  • Percentage Of Vacant Homes: 9.83%

  • Foreclosure Rate: 1 in every 6,658 (1.5%)

San Francisco Real Estate Investing 2020

The San Francisco real estate investing community was largely influenced by the introduction of the Coronavirus in the first quarter of 2020. Heading into 2020, investors generally practiced rehabbing and wholesaling whenever attractive profit margins presented themselves (which wasn’t often). However, the onset of the pandemic sent the San Francisco real estate market reeling. At first, the market became stagnant on the heels of fear and uncertainty. Nobody wanted to sell a home, let alone tour one during a pandemic. In a matter of weeks, the market was brought to a standstill.

By May, it was apparent the impact of COVID-19 on real estate in San Francisco was going to be temporary. In just a few months, in fact, market sentiment went from fear to frenzy, as government intervention and historically low interest rates catalyzed activity; it was that activity that would shape the way people invested in San Francisco real estate over the course of 2020.

Real estate in San Francisco had been exorbitantly expensive for far too long, and the drop in interest rates made acquisition costs more bearable. With rates dropping well below 3.0%, many investors turned their sights on long-term rental properties. The unique convergence of low borrowing costs and the ability to pay down a mortgage with someone else’s money in one of the country’s most expensive cities was too attractive to ignore. Additionally, the city’s lack of available housing mitigated the risk of vacancies. Even people who wanted to buy couldn’t because of low inventory levels, which forced more people to rent in 2020.

San Francisco Real Estate Market: 2019 Summary

  • Median Home Value: $1,353,500

  • 1-Year Appreciation Rate: 2.9%

  • Median Home Value (1-Year Forecast): 1.4%

  • Median Rent Price: $4,500

San Francisco Real Estate Investing 2019

The median home value was $1,353,500 in the first half of 2019. In one year (March 2018 to April 2019), the Bay Area’s most prolific city’s median home value increased by a modest 2.9%. However, the median home value dropped in March compared to the same time last year, “marking the first annual drop since the bottom of the last housing crash, seven years ago,” according to CoreLogic. Before the drop, real estate had risen in price for 83 consecutive months since April 2012.

To put things into perspective, the median home value in the United States was $226,700, or $1,126,800 less than the average home in the Bay city. However, on a national level, median home prices appreciated more than twice as fast as real estate in San Francisco. That’s most likely because the Bay Area reached a tipping point before everywhere else.

As one of the most expensive real estate markets in the country at the time, San Francisco’s prices were prohibitively overpriced for many investors. However, while real estate was costly, it was also in high demand, which served investors well. Despite prices, real estate investing was consistently buoyed by demand. Anyone who could afford to invest stood to find attractive profit margins. In fact, the city had the highest average home seller returns in the first quarter of 2019—second only to its neighbor to the Southeast: San Jose.

San Francisco Real Estate Investing 2016

The San Francisco housing market was unstoppable in the first half of 2016 and the rest of the year, for that matter. Home prices quadrupled compared to the national average and continued to grow relative to the previous year, as the city ranked in the upper echelon of appreciation rates.

Despite weaker affordability, the local economy was strong and on an upward trend. New housing construction outpaced the national average, which helped affordability down the line—albeit slightly.

From an investor perspective, foreclosures were an opportunity in the making. The San Francisco housing market had 528 properties in some stage of foreclosure during the final quarter. Despite being very low, foreclosures were actually 40.0% higher than the previous month and 17.0% higher than the same period in the previous year.

San Francisco Real Estate Market: 2015 Summary

  • Median Home Price: $742,900

  • 1-Year Appreciation Rate: 10.1%

  • Unemployment Rate: 4.4%

  • 1-Year Job Growth Rate: 3.1%

  • Population: 837,442

  • Median Household Income: $79,624

San Francisco Real Estate Investing 2015

The city was in a league all to itself in 2015. For all intents and purposes, the Bay Area city had taken the recovery and run with it at a blistering pace. The Golden Gate City outpaced nearly every market in the country in terms of appreciation and value. It should come as no surprise that real estate appreciated nearly twice as fast as the national average at the time. Real estate investing proved to be very lucrative and set the table moving forward.

Homes were appreciating at a rate of 10.1%. The national average, on the other hand, was 5.7%. Perhaps even more impressively: real estate appreciated 60.7% in a period of three years (dating back to 2012).

At the time, the housing market was supported by equally impressive economic fundamentals. The job sector, in particular, supported healthy supply and demand for the area. At 4.4%, the city’s unemployment rate was well below the national average. Perhaps even more importantly, unemployment showed signs of dropping. Job growth was expected to bolster the city’s economy as well. Over the course of a year, the job growth rate surpassed 3.0%, more than a whole percentage point above the national average.

There was one factor, however, that impeded the progress of real estate: affordability. With appreciation rates topping 10.0% over the course of a year, the Northern California city was less affordable than most other housing markets. The average household across the country dedicated 15.1% of their monthly income to mortgage payments. However, it was normal for owners to spend 22.9% of their income on monthly mortgage payments.

Fortunately, distressed property discounts offered a great return on investment. The median sales price of a non-distressed home was $1,050,000. The median sales price of a foreclosure home was $780,300, or 26.0% lower than non-distressed home sales. That was a discount of approximately $269,000. The amount investors saved on foreclosures in 2015 was more than the median home price across the country.

The majority of foreclosures in the San Francisco housing market were pre-foreclosures or at risk of being possessed because of the owner’s inability to pay an outstanding mortgage obligation. Nonetheless, only 3.3% of the homes found themselves in a position of negative equity. That was considerably lower than the national average of 16.9%.

At the time, the best places to invest in San Francisco were:

  • Pacific Heights

  • Noe Valley

  • South Beach

  • Central Sunset

  • Russian Hill

San Francisco County Map:

Map of San Francisco neighborhoods

Summary

The San Francisco real estate market is unlike any other in California, let alone the world. Few places have seen such a historic run in value without detracting from demand. That said, 2021 may be the year price temperance makes the city more affordable, which is great news for everyone interested in participating in the market. Until prices return to some form of normalcy, however, investors are awarded the luxury of practicing long-term exit strategies. Despite the city’s high cost of living, rental properties appear to be more viable than ever and should remain so for the foreseeable future.

Have you thought about investing in the San Francisco real estate market? If so, what are you waiting for? We would love to know your thoughts on real estate in San Francisco in the comments below:

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