The SF property market is one of the most desired, but will San Francisco home prices keep going up? Things are hot in 2021 with the pandemic fading into the distance. Low inventory and fierce competition to buy is pushing San Francisco home prices up yet again.
But what about prior years? There was a bit of a correction in 2H2018 when prices cooled off, valuations got stretched, and prices appreciated so much faster than income. Inventory was also at multi-year highs.
I saw that as a healthy correction because such rapid price appreciation could go on forever. However, once people got their bonuses again in early 2019, the property market started to rebound. Mortgage rates also came back down in 2019 which is also drawing people in.
Then the pandemic hit in 2020 and everything slowed down. Most people were scared to make any big investments, let alone leave their homes.
But with the economy opening back up and things returning to normal, there is a buying frenzy in 2021.
San Francisco Home Prices Are Up
Take a look at some of these recent stats on San Francisco home prices in 2021. The median sold price of existing single-family homes in San Francisco was a whopping $1,800,000 in April 2021 according to the California Association of Realtors, CAR. The sales YTY% Change is up over 165%!
The San Francisco Bay Area median sale price of SFH is also up at surpassed $1.3 mil in April 2021.
In addition, sources like Redfin clearly indicate the fierce competition in the San Francisco housing market.
When I Sold My San Francisco Home
In 2017, I sold a house for $2,740,000 = 30X annual gross rent. I wanted to hold it forever, so my kids would have something to manage or somewhere to live just in case. But, I just couldn’t take being a landlord in San Francisco anymore.
For my 2 bedroom, 2 bathroom condo rental, my previous tenants found new replacement tenants and I kept the rent flat at $4,200/month. In retrospect, I should have tried to raise the rent to $4,300 or $4,400 to cover the rising HOA and property taxes. But I didn’t want to risk losing them (landlord mentality now). The only “benefit” I got was not losing a month or more worth of rent looking for another tenant.
Here’s a detailed chart highlighting rents in 2017. They were down from the highs, but they had stabilized in SF.
I ended up reinvesting $500,000 of my SF rental house sale proceeds in June 2017 in much cheaper real estate in the heartland through real estate crowdfunding. The prices are closer to 10X – 15X annual gross rent (versus 30X annual gross rent), and yields/potential returns are 8% – 15% vs. -5% to +2.5% in SF.
San Francisco Prime Real Estate
Buyers of SF real estate and coastal real estate should be pickier now. Focus on buying in premier neighborhoods that have yet to be discovered like Golden Gate Heights. This neighborhood is by far the neighborhood with the most price appreciation potential due to its location, cluster of single family homes, and panoramic ocean views.
Panoramic ocean view homes trade at a premium everywhere in the world, except for San Francisco. I expect this price differential to straighten itself out over the next 10 years.
But knowing how people lose their heads bidding on properties, I suspect there will continue to be huge overbids at peak prices.
When San Francisco real estate corrects, it only corrects by about 10% – 15%. But we did see about a 27% correction during the worst financial crisis of our lifetime! I know, because I tried to sell this same rental house I sold for $2,740,000 in 2017, for $1,700,000 in 2012 and NOBODY wanted to buy it. In fact, I got a couple low ball $1,600,000 offers which I thankfully ignored.
Please do not listen to real estate agents who say you “must buy or be priced out forever.” Buy when you feel you are most comfortable buying. Have a 20% downpayment and an additional 10% buffer in liquidity.
Yes, tech IPOs will continue to boost SF Bay Area real estate prices. It's probably a good idea to own your SF Bay Area primary residence to ride the way.
Look Beyond San Francisco Home Prices
But as far as investing in SF Bay Area real estate, prices are expensive with cap rates at only about 2.5%. You can do a much better job diversifying into the heartland of America through Fundrise, the best real estate crowdfunding platform where you can get 8% – 12% cap rates instead without having to do any work.
Fundrise is free to sign up and look around. I'm happy to diversify my real estate holdings in the next SF Bay Area such as Austin, Texas.
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About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
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