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It’s a unique, competitive market!
OK, first of all let’s address the elephant in the room – San Francisco is an expensive place to live and yet like many other US cities it still has issues. But why are there still many people wanting to move here from all over the world? Is it because of its unique cultural mix, the cool year-round breeze from the Bay, the unique vibes of every neighborhood, or all those brilliant tech minds that over the past 30 years have changed our world? Whatever the reasons, for those of us who live here it’s a great place to live, work and play.
Supply has always been limited and demand has always been strong, so San Francisco has never been a buyer’s market, and buyers are expected to “overpay”. Constant buyer demand drives competition here, making prices higher than many other major US cities but San Francisco has proven time-after-time that it’s a place to grow your wealth at a steady pace. To give you some perspective, the median price for single family homes in all of San Francisco county as at November 2011 was $740,000 but by November 2021, the median price had grown almost 2.5 times to $1,825,000. Similarly, the median price for condos in all of SF County in November 2011 was $654,000 but by November 2021 this had grown almost 2.3 times to $1.5m.
Looking back 2021
Against the predictions of many industry experts, economists and speculators, the Covid pandemic didn’t cause the San Francisco real estate market to crash. The condo market did take a hit during the first lockdown from April 2020 till February 2021. In contrast, prices of single family homes in suburban neighborhoods in the Bay Area sky-rocketed. 20%-50% over asking became a norm in this segment.
In the San Francisco condo market, there was a short period of time of roughly 6 months in mid 2020, when many San Francisco renters in densely populated neighborhoods (eg, Downtown Financial District or South Beach) flocked to the suburbs as soon as working from home became mandatory for many employees. As a result, many condo owners came under financial stress and had to sell.
Then, as vaccination rates slowly went up and panic about the pandemic subsided, people started returning to the city, lured by modern convenience and all the advantages of being close to other people, but with fewer concerns about Covid.
In general, prices in the condo market have followed the movement of people: prices did take a hit initially, but have been gradually increasing, with an estimated 5-7% still to be recovered from the pre-pandemic period. Early in the pandemic, experienced investors and home buyers took advantage of the situation by negotiating great deals with stressed sellers. This was a minority: the majority of home buyers were sitting back waiting for a clearer signal from the market.
Of course there has been variation: condo prices in certain high density locations (eg, the Downtown Financial District) are still recovering whereas neighborhoods that offer outdoor space and room to move (such as Mission Bay) are experiencing increasing demand. Working from home means that residents need more space, and this has meant that two bedroom units or homes with dens or office spaces have been consistently in demand.
Outlook for 2022
Real estate prices are determined by demand and supply, which in turn are affected by many other factors including the job market, inflation, interest rates and affordability.
The supply of housing in San Francisco is tight and this is not likely to change in the next 2-3 years; because of the time needed to plan and build condo developments. As well, current shortages of labor and building materials are causing a slowdown in the supply of new condos, as well as forcing costs up. The higher prices now being changed in new developments are expected to flow through to the rest of the housing market.
As of December, 2021, inventory was low and it appeared that there were many potential sellers waiting for higher inflation to boost the prices they received, rather than selling in the short term and having their return diminished by inflation later. Many of these sellers were believed to be waiting for the spring season before putting their properties on the market.
Demand for housing (either buying or renting) in San Francisco is driven heavily by tech workers, mostly millennials. This group often prefers condos because of cost, convenience and the amenities on offer. Many millennials, especially those currently renting, are also expected to diversify their portfolios by investing in their own homes as rental prices go up. In the normal course of events this would strengthen demand, especially for condos, but now that tech companies are responding to the Omicron variant by delaying the return of employees to their office locations, the rate of recovery in condo prices is likely to slow.
International buyers have historically been important players in the San Francisco real estate market; this group of buyers has largely been absent for several years but with the opening of international borders they are expected to return to the market in larger numbers in 2022.
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