How is Inflation Affecting the San Francisco Real Estate Market?


San Francisco is one of the most expensive real estate markets in the world due to its beautiful landscape, consistent job growth, and overall vibrant living conditions.  Since the tech boom in 2012, San Francisco’s economy and real estate market have grown exponentially in both size and wealth.  San Francisco is a city with over 90% white collar workforce mostly due to the abundance of high-tech jobs in the area.  As the technology sector continues to grow, so does the population of buyers interested in making San Francisco their home.  However, as extensive as the San Francisco real estate market growth has been for the past decade, it is not immune to the effects of global inflation.  

In June, the U.S. inflation rate reached a more than 40-year high of 9.1%.  The percentage has steadily dropped and remained close to 8.2% during August and September, however the results of the steep increase are visible across the real estate market even in booming areas such as San Francisco. So, just how is inflation affecting the San Francisco real estate market? 

Home price declines

It’s no secret that housing prices throughout the entire United States rose dramatically during 2020 and 2021 due to a major lack of inventory, record low mortgage rates, and overwhelming competition.  But in San Francisco, home prices have been on the rise for over a decade, which means an already high cost of living coupled with skyrocketing home prices led to some of the highest home sale prices on record.  The median sale price of existing single-family homes in San Francisco during the month of August 2022 was $1,635,000.  That price was down from the August 2021 median price of $1,850,000.   Even if home prices decline in the San Francisco area.  The median price will continue to decline as long as inflation remains.   

Wavering home values

Over the past few years home values have appreciated at very rapid rates.  But as inflation lingers, the rise in home values has leveled out.  Everything from interest rates to supply and demand can increase or decrease a home’s value, which means as inflation rates rise home values tend to decrease.  Of course sellers have no control of the economic factors or the rise in mortgage rates. Sellers who are hoping to cash in on the increased value of their home might find the value is lower than expected. This can lead to a stressful selling process, especially during the current market.  

Home sales have slowed

In 2020 and 2021, homes in San Francisco were flying off the market within days of being listed.  But as inflation causes more and more buyers to rethink their day to day expenses as well as long term investments, homes are going to remain on the market longer. While home prices haven’t bottomed out, the number of homes sold has decreased.  All across California home sales have dropped.  The San Francisco area has seen the second largest decline with sales dropping 29% from a year ago.  The San Francisco housing market has been a seller’s market for the past decade but inflation is pushing the market toward neutrality.  In September 2021 the average time on the market was just 16 days.  Currently, the average time on the market for a single family home is 31 days.  The slow down signals less competition among buyers which will most likely lead to lower final sales prices across the area.  Sellers may have to work a bit harder to market their home if they want to sell their San Francisco home fast.  

  San Francisco may be a tech hub with unlimited natural beauty and a style all its own, but even it is not immune to the effects of inflation.  With higher mortgage rates, buyers worried about the cost of everyday items, and more inventory becoming available everyday, a market slowdown is going to continue.  Though the San Francisco real estate market is cooling, it is not headed toward a full blown buyers market but rather a more neutral market.