- The San Francisco real estate market remains one of the most expensive housing markets in the world.
- Despite its high prices, real estate in San Francisco awards investors with countless opportunities to realize profits.
- San Francisco real estate investing currently leans more in favor of traditional buy-and-hold strategies.
News regarding the San Francisco real estate market is starting to sound like a broken record. The same high prices that flooded news outlets after the recovery are still making headlines in today’s real estate landscape. It is worth noting, however, that the city’s high prices have recently exhibited their first sign of temperament. For the first time in years, home prices actually dropped from the same time a year earlier—albeit slightly. Nonetheless, the temporary dip in prices may cause reason for optimism amongst the San Francisco real estate investing community. Having dealt with some of the country’s most exorbitant prices for the better part of a decade, a slight easement may give way to more investing potential.
San Francisco Real Estate Market Overview
- 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
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Median Home Price San Francisco
According to Zillow’s Home Value Index, the median home value the San Francisco real estate market is $1,353,500. 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 in San Francisco 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 in San Francisco has risen in price for 83 consecutive months since April 2012. The recent drop may provide a glimpse into the next year, as home value increases are expected to temper even further. In the next 12 months, Zillow expects home values to rise 1.4%, which is less than half of the previous year.
To put things into perspective, the median home value in the United States is $226,700, or $1,126,800 less than the average home in San Francisco real estate market. On a national level, however, median home prices have appreciated more than twice as fast as real estate in San Francisco. That’s most likely because the Bay Area has started to reach a tipping point, and could explain the latest dip in prices. Therefore, it’s safe to expect prices to rise in the coming year, but at a slower rate.
San Francisco Foreclosure Statistics
At the beginning of 2019, the San Francisco real estate market boasted one of the lowest foreclosure rates in the United States. With a foreclosure rate of 0.1%, only Denver was on the same level as San Francisco. More specifically, data released by RealtyTrac acknowledges at least 189 distressed properties in the San Francisco real estate market. It is worth noting, however, that even the majority of distressed properties in San Francisco haven’t technically been foreclosed on. In fact, 73.7% of the distressed homes in San Francisco are pre-foreclosures, which suggests the owners are merely at risk of being foreclosed on.
Pre-foreclosures may represent a unique opportunity for San Francisco real estate investors to acquire deals below market value. Motivated homeowners are much more likely to part ways with their properties, at a discount nonetheless. The rest of San Francisco’s distressed properties fall into one of two categories: auction and bank-owned homes. Of the 189 homes, 10.5% are reserved for auctions and the remaining 15.8% are bank owned.
For a more regional breakdown of where most of the distressed homes in the San Francisco housing market are, the following represents the neighborhoods with the highest foreclosure rates:
- 94124: 1 in every 2,295 homes is currently distressed
- 94132: 1 in every 2,718 homes is currently distressed
- 94134: 1 in every 4,247 homes is currently distressed
- 94112: 1 in every 4,880 homes is currently distressed
- 94110: 1 in every 5,955 homes is currently distressed
San Francisco Real Estate Investing
As one of the most expensive real estate markets in the country—let alone the world—San Francisco’s prices are prohibitively overpriced for many investors. However, while real estate in San Francisco is incredibly expensive, it’s also in high demand, which bodes incredibly well for investors. Despite prices, San Francisco real estate investing will continue to be buoyed by demand. As a result, it appears as if anyone who can afford to invest in San Francisco real estate stands to find attractive profit margins. In fact, San Francisco had the highest average home seller returns in the first quarter of 2019—second only to its neighbor to the Southeast: San Jose.
According to Attom Data Solutions, cities “with the highest average home seller returns in Q1 2019 were San Jose, California (84.1 percent); San Francisco, California (70.9 percent); Seattle, Washington (63.1 percent); Modesto, California (59.7 percent); and Salt Lake City, Utah (56.5 percent).”
Outside of home sales, San Francisco real estate investing appears tailor-made for traditional buy-and-hold investors. If for nothing else, rental prices are higher than just about everywhere else in the country. According to Zillow, the median rent price in the San Francisco real estate market is $4,500. At that rate, buy-and-hold investors could theoretically offset today’s high acquisition costs with years of rental income.
San Francisco Real Estate Market Summary
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.
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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