San Francisco, CA Real Estate Market Trends & Analysis [Updated 2020]

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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 San Francisco housing market is actually 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 2020. To be fair, 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 the first quarter of 2020, in fact, 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 historic appreciation, there appears to be little more room for growth. Consequently, the average home in the city sold for about $61,000 (or 5.07%) less than the listing price as recently as February, according to RealtyHop.

For better or for worse, the city’s latest sales figures would suggest the market is experiencing a bit of a cold front. However, contrary to many initial assumptions, the latest drop in sales prices is less of an indictment on local real estate and more of a return to normalcy. If for nothing else, the city’s exorbitantly high prices were limiting its potential. Tapering sales prices—small as they may be—could 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?

San Francisco Real Estate Market 2020 Overview

  • 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%)


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San Francisco housing market

2020 San Francisco Real Estate Investing

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 2019. According to Attom Data Solutions’ most recent Home Sales Report, the average home seller in 2019 “realized a home price gain of $65,500 on the typical sale, up from $58,100 last year and up from $50,027 two years ago.”

The report is quick to point out that profits “represented a 34 percent return on investment compared to the original purchase price, up from 31.4 percent last year and up from 27.4 percent in 2017, to the highest average home-seller ROI since 2006.” Thanks, in large part, to contributions made by the San Francisco real estate market, profits generated from selling a home in 2019 were higher than they had been in 13 years. Sellers were the beneficiaries of the country’s second largest return on investment in 2019 (72.8%), trailing only San Jose (its Bay Area neighbor), according to Attom Data Solutions.

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, but 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 25.7, it is definitely 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 same demand for rental spaces that has limited vacancies across the city has also stirred up enough competition to allow the San Francisco real estate investing community to increase rental rates. Today, the median rent price (according to Zillow) is $4,500–enough to make it the second most expensive city in the world to rent in, according to Business Insider. As a result, real estate investors may be able to offset today’s exorbitantly high acquisition costs with years of historic cash flow. Marin County and Contra Costa (two of the least affordable rental markets in the country) are two neighborhoods just outside of the San Francisco housing market where rental property owners are seeing impressive cash flow.

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.

2020 Foreclosure Statistics In San Francisco

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 6,658 homes conforms to the “distressed” description: default, auction or bank owned. In fact, the city’s 1.5% foreclosure rate is well below that of the national average (which is currently around 4.4%).

Despite the low foreclosure rate, however, real estate in San Francisco has been slightly more susceptible to foreclosure filings in recent history. As recently as January, “the number of properties that received a foreclosure filing in San Francisco, CA was 28% higher than the previous month and 19% higher than the same time last year,” according to RealtyTrac. To put things into perspective, “the number of properties that received a foreclosure filing in U.S. was 13% higher than the previous month and 7% higher than the same time last year,” at the start of 2020.

The increase in foreclosure filings over the last year may be the result of more defaulting homeowners. Otherwise known as pre-foreclosures, the number of defaulting homeowners increased 31.8% year-over-year, and now make up 58.0% of the city’s distressed inventory. Dropping 7.7% year-over-year, foreclosed homes reserved for auction now make up 28.0% of the city’s distressed inventory. Rounding out the rest of the city’s distressed assets, bank-owned homes make up another 14.0% of the distressed market.

The most abundant source of distressed properties in the San Francisco housing market is defaulting homeowners. That means, most of the city’s distressed homes aren’t actually in foreclosure, but are actually at risk of defaulting. Nonetheless, these homeowners may represent a great opportunity for the San Francisco real estate investing community to acquire a deal below market value.

For a better idea of the distribution of foreclosures, here’s a breakdown of where the highest distributions are and what types investors are most likely to find:

Foreclosures in San Francisco

Data provided by RealtyTrac

2020 Median Home Prices In San Francisco

The San Francisco housing market is the most expensive market in the most expensive state. With a median home value of $1,392,859, the average value of a home in the city is more than one-million dollars more than the median home value in the United States. It is worth noting, however, 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 eight consecutive years, to the tune of a 104.8% appreciation rate. In as little as eight years (January 2012 to February 2020), the median home value increased more than $712,000.

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 continue to show remarkable growth.

For those of you asking “are housing prices going down in San Francisco,” there was a moment in recent history when price gains experienced a lull. However, what really happened was a drop in appreciation rates. Prices were continuing to increase, but at a slower pace. Over the course of the next 12 months, the city (as a whole) should continue to see its median home value appreciate. Due, largely in part, to a distinct lack of available housing, Zillow expects the median home value to increase by as much as 3.9% in one year’s time. There simply isn’t enough inventory to satiate demand, which will simultaneously drive up competition and prices. It is safe to assume prices will continue to rise until enough new inventory is brought to market in the Bay Area.

Here’s a look at how home values stack up against the rest of the country over the last decade:

Median home prices San Francisco

Data provided by Zillow

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. Perhaps even more importantly, local demand supports a very attractive rental market, which bodes incredibly well for well-positioned buy-and-hold investors.

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’s time (March 2018 to April 2019), the median home value in the Bay Area’s most prolific city 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. Prior to 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. On a national level, however, 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 incredibly expensive, 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 in comparison 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 at 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

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:

*The information contained herein was pulled from third party sites. Although this information was found from sources believed to be reliable, FortuneBuilders Inc. makes no representations, warranties, or guarantees, either expressed or implied, as to whether the information presented is accurate, reliable, or current. Any reliance on this information is at your own risk. All information presented should be independently verified. FortuneBuilders Inc. assumes no liability for any damages whatsoever, including any direct, indirect, punitive, exemplary, incidental, special, or consequential damages arising out of or in any way connected with your use of the information presented.
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