The San Francisco housing market is strong in 2022+, despite the lingering coronavirus pandemic. The only thing the coronavirus has done is hurt transaction volumes due to shelter-in-place. Real estate brokerage firms are hurting becomes volumes are down. But San Francisco housing prices keep going up.
Investing in San Francisco real estate has been a terrific bet for decades. San Francisco and the Bay Area at large is home to world class universities and the most innovative and fast growing companies in the world.
Once the coronavirus pandemic subsides, borders will open up again. If so, foreigners are going to buy up San Francisco and U.S. property in droves. I estimate over $250 billion in pent-up foreign demand for U.S. property!
With such strong job growth and wage growth, it's no wonder why San Francisco real estate continues to be one of the most sought after assets in the world. San Francisco real estate faces a domestic demand curve and an international demand curve.
I've lived in San Francisco since 2001 and have seen San Francisco housing market do well after the dot comb crash in 2000 until the end of 2006. During the 2008 – 2009 financial crisis, San Francisco housing finally declined by about 15% – 20%. But that was due to over-leverage in the mortgage market and the S&P 500 was down about 55%.
Since 2009, San Francisco real estate has roared back with a vengeance, and I believe San Francisco real estate will do well during the pandemic.
San Francisco Housing Market During The Coronavirus
The sweet spot for real estate outperformance is somewhere between a 20% – 25% stock market decline.
During such a level of decline, mortgage rates tend to fall as investors buy Treasury bonds. As a result, real estate demand increases because affordability increases.
Further, during a stock market correction, money tends to flow out of the stock market and into real estate and other more defensive asset classes like bonds. As a result, bonds and real estate tend to go up in value.
Real estate is attractive because it provides income and shelter during a storm. And during a coronavirus pandemic with shelter-in-place, real estate becomes incredibly valuable.
San Francisco Housing Market Is Strong During The Coronavirus
On February 21, 2020, I stumbled across a quaint three bedroom, three bathroom, single-family home with ocean views. The kitchen had been redone about five years ago with basic finishes. The bathrooms were remodeled maybe 20-25 years ago also with basic finishes.
The property was in the Inner Sunset / Golden Gate Heights neighborhood, which is the best place to buy San Francisco real estate in my opinion. The area is less dense, very quiet for families, surrounded by nature and parks, with homes that often have amazing ocean views.
Overall, the house has about 2,220 square feet of living space and is situated on 3,000 square feet of land. The main downside to the house is that it is one block away from a very busy street: 19th Avenue. 19th Avenue is Highway 1 and has three lanes going each way with bus stops all along the street. With the back of the house facing 19th Avenue, the house was pretty noisy.
The house was move-in ready, although one could easily spend $100,000 updating the house with new windows, new wiring, and new bathrooms. I know I would if I bought the house. Old knob and tube wiring can be dangerous. It's always best to upgrade to Romex wiring and upgrade the sub-panel and main panel if you have the money.
Here are some pictures of this middle-class house.
The listing price was $1.495 million which is below the median home price in San Francisco of roughly $1.6 million. In other words, demand is very high at this price point. With mortgage rates so low, many dual-income couples who earn a combined $300,000 can easily afford this price point if they have a 20% down payment.
The sellers set an offer date of March 6, 2020, two weeks after listing. This is customary in San Francisco as it allows the agent to host two broker tours on Tuesday and at least two open houses on two weekends. Two weeks also creates a small enough window for motivated buyers to put in an offer.
By March 6, the S&P 500 had already begun its downward descent. We had already all heard about the coronavirus when this house first came on the market on February 21, 2020.
Strong Demand For San Francisco Housing Market
With all that's going on in the markets and with coronavirus fears floating around, one would think that demand for this piece of property wouldn't be very high. Oh, how mistaken you'd be.
What do you think the final sales price was?
How about $1.65 million for a reasonable 10% over asking during a coronavirus pandemic? You're not even close.
How about $1.8 million or 20% over asking as the S&P 500 and the Dow were crashing by 30%? You're still way, way off.
OK, surely $1.95 million, or a whopping $455,000 over asking was the winning price as the coronavirus shut down the Bay Area economy with shelter-in-place. Three strikes and you're out!
The property closed on March 25, 2020 and the final sales price was $2,088,000 or an incredible $539,000 over asking!
Way Over Estimates
Besides the final sales price being 39% higher than the list price, the final sales price was also 7.5% higher than Redfin's estimate of $1,946,632. Redfin usually has the most accurate online property estimate today. Although, it still can't account for remodeling work properly.
Given the property closed on March 25, only 17 days after the offer due date, the property was likely purchased with 100% cash. The buyer is also likely Chinese given the two 8s in the final sales price.
The buyer could have backed out of the property at any time before the closing, but didn't. This is despite the S&P 500 crashing by 30% from its highs on March 23.
If the property was tracking the S&P 500 down 30%, then Redfin would have estimated the property's value not at $1,946,300, but closer to $1,362,000. Instead, the property went for a whopping $2,088,000.
If you own property in this neighborhood, you are giving yourself a high-five! And if you own a single family home anywhere in San Francisco, you are likely tremendously outperforming the S&P 500. Real estate across the country is likely seeing a tremendous amount of demand right now, especially if the brokerage business opens up.
San Francisco Housing Market Is Doing Well
I have first hand knowledge of the Inner Sunset / Golden Gate Heights neighborhood because I've been recommending investors buy this neighborhood since 2017. There is tremendous upside value to homes with ocean views, given ocean view homes in every major international city in the world are trading at tremendous premiums to the median.
If the S&P 500 was flat during the time of sale, I would have guessed the property would have gotten at most $1,900,000, or $405,000 over asking. I certainly would have not guessed over $2,000,000.
Therefore, it is possible the violent selloff in the stock market pushed the value of this house even higher. This is the rotation of money out of stocks and other risk assets and into real estate and bonds that I've been talking about.
When you're forced to shelter-in-place, your home becomes increasingly valuable! Millions of Americans are now spending dozens of hours more in their homes each week.
As a result, expect to see the desire for remodeling and slightly bigger homes go up. Expect to also see the demand for homes overall go up.
The San Francisco housing market is strong during the coronavirus. The San Francisco housing market should get stronger in 2H2020 and beyond due to pent up demand and a likely dearth of inventory going forward.
I would be actively trying to hunt for deals during the coronavirus pandemic. There probably won't be many, but if you don't try, you will never find any.
More San Francisco Housing Market Examples
One property doesn't make a trend, but the $2,088,000 example is not an outlier. It is a typical single family home in San Francisco.
Below is a lovely Oakland single family home with five bedrooms, three baths, 3,130 sqft that was asking $2,595,000 on March 12, 2020 and sold for $2,810,000 on March 27, 2020. It was very nicely renovated in 2016.
Below is a San Francisco single family home with five bedrooms, six bathrooms, and only 4,645 sqft that sold for a whopping $9,500,000 on March 27, 2020. Although the final sales price wasn't over its $9,500,000 asking price, the sales price is about $460,000 over Redfin's estimate price.
What's really interesting about this property is how it probably needs another $1 million in renovations. To be able to spend $10+ million on a home during a coronavirus pandemic is extremely impressive. Usually, you would think that the super high end would be weak. Only super remodeled, pristine properties should sell. This one was not one of them, but is still in the prime Presidio Heights neighborhood.
Property Is A Defensive Investment
Property is my favorite asset class to build long-term wealth. It's much more stable and provides much more utility and joy. While stock investors are losing their shirts as their phantom wealth disappears, real estate investors don't even care about the volatility because they're too busy enjoying life!
During the 2008 – 2009 financial crisis, I continued to receive my rental checks because my tenants kept their jobs. Rent prices stayed flat for two years, and inched up to catch up with inflation.
During the 2020 coronavirus crisis, I expect rents to stay steady as well, especially with the government providing tremendous stimulus for Americans most in need through the CARES Act.
Another buying indicator for the San Francisco housing market is rent. San Francisco rents to income is extremely undervalued. But as people rush back to San Francisco, the discount will disappear. Therefore, I would be buying San Francisco rental properties now.
You may not have the funds to buy a single family home in San Francisco, Oakland, or the Bay Area just yet. Therefore, aggressively start saving for your down payment. Overall, I think the nationwide housing market should stay strong for years to come.
Invest In Real Estate Crowdfunding
If you can't buy San Francisco real estate just yet, you should consider getting long real estate to ride the wave. Take a look at the performance of Fundrise, my favorite real estate crowdfunding platform. I've personally got $810,000 invested in real estate crowdfunding as I think real estate is a big beneficiary of an inflationary environment.
Notice how Fundrise's platform portfolio outperformed in 2015 and 2018 when the stock market returns were dismal. Also notice how the returns are pretty steady each year. I expect Fundrise to continue to show steady performance in 2020 and beyond.
Sign up for Fundrise for free to explore their various private eREITs. If you're looking to invest in real estate and diversify your real estate holdings, Fundrise is great.
If you want to invest across America to find better cap rates, lower valuations, and higher growth, check out CrowdStreet. CrowdStreet allows you to invest in specific commercial real estate deals. You can build your own select fund with CrowdStreet.
Don't Forget To Refinance Your Mortgage
San Francisco real estate continues to be the “Rolls Royce” of United States real estate. It is quickly cementing itself as one of the great international cities of the world, along with London, New York, Hong Kong, and Paris.
I'm confident that in 20+ years, your children will be amazed by how cheaply you were able to buy San Francisco real estate today. Just make sure to always run the numbers! But if you can't afford a Rolls Royce, a BMW or Mercedes or any reliable Japanese car will do too.
Again, if you haven't refinanced your mortgage yet, please at least check the latest mortgage rates online. Rates are so low now that it is making San Francisco real estate much more affordable. Check mortgage rates online and then call your bank to see what they have to offer.