Status of the San Francisco Real Estate Market in 2017

While still one of the nation’s hottest markets, home sales in San Francisco have begun to cool off. As in the greater Bay Area, soaring home prices have led to an affordability crunch, with potential buyers being frozen out of the market. However, home values are still high, with real estate analysts from Zillow noting a 12.8% increase in home values in 2017. This follows a surge of home prices in the previous five years, mainly due to the red-hot tech industry, with a nearly 70% increase since 2011, while at the same time, construction fell behind.

Demographics in San Francisco

Despite the huge influx of millennial homeowners across the nation, San Francisco’s among the cities with the lowest rate of homeowners born between 1982-1999 in the country, with only 20.5 %, far below the national average of 31.2%. Rental site Abodo blames soaring prices, noting the required down payment would be far above the means of the average millennial. Older demos that own homes are holding on to them, with the values soaring more and more every year, with the prospect of downsizing being delayed by many. One worry is that the high cost of living in San Francisco, which includes the highest rent in the country, may push skilled workers into relocating to an area that’s more affordable. A Bay Area council poll found that 46% of millennials living in the San Francisco Bay Area were ready to leave the area over the next few years, citing the cost of living as the dominant factor in their choice.

Average prices of housing in the San Francisco Real Estate Market

According to Zillow, the median home price in San Francisco was $1,195,000. Existing home prices have risen 36% in just two years according to the National Association of Realtors. Average rent is around $4,650 for a two bedroom apartment, the highest in the country, and over $1000 more than the second most expensive city, New York.

Reasons for growth and outlook for 2018

Despite cooling sales activity in 2017, mostly due to the affordability crunch and lack of inventory, Zillow still lists San Francisco as the fifth hottest real estate market in the country. The tech industry continues to attract new residents, with low unemployment. However, one area of concern remains the cost-of-living costs, and thanks to Federal Tax Law reform, homeowners will see the deductions of mortgage interest and taxes limited. As such, the incentive of owning a home is down for some, although the rental market is booming, with many homeowners renting out their homes and making big profits, especially as the inventory dwindles and new residents struggle to find affordable housing. Home values won’t raise as much as they did in 2017, making the market more warm than red hot, with the increase for 2018 predicted to be a more modest 4.8%.  This is still a large increase for homeowners looking to sell, with homes entering the market being bought quickly, often above the asking price.