San Francisco, once the hottest housing market in the country, is now showing signs of serious trouble. The median price of a single-family home in the city has plunged by 35% since its peak in April 2022, according to the California Association of Realtors1. The city is also the only one of the top 100 metro areas in the US to record a year-over-year decline in home prices in June 2022, according to Redfin Corp2.
What is behind this dramatic downturn? A combination of factors, including:
- The collapse of Silicon Valley Bank, which was a major lender and asset manager for many tech startups and affordable housing developers in the region34. The bank’s failure has triggered a credit crunch and a wave of lawsuits, leaving many projects in limbo and many borrowers in distress.
- The exodus of residents and workers from San Francisco and Silicon Valley, driven by the pandemic, remote work, high living costs, and quality-of-life issues. According to Census data, San Francisco alone lost about 56,000 residents, or 6.3% of its population, in the period of 2020 through 20221. Many tech workers have relocated to other states or countries, taking their incomes and spending power with them.
- The oversupply of new housing units, especially luxury condos and apartments, that were built during the boom years. According to Zillow, there were about 12,000 new housing units completed in San Francisco from 2020 to 20221, adding to the existing inventory of unsold and vacant properties. The demand for these high-end units has dried up, forcing developers to slash prices and offer incentives.
- The backlash from local residents and activists against new development, especially high-density and affordable housing projects. Many neighborhood groups have used various tools, such as zoning laws, environmental reviews, historic preservation, and lawsuits, to block or delay new construction. They argue that new development would ruin the character of their communities, create traffic and parking problems, and cast shadows over their homes5.
These challenges have created a vicious cycle for San Francisco’s housing market: As prices fall, fewer sellers are willing to list their homes, reducing the supply of available properties. As supply shrinks, fewer buyers are interested in purchasing homes, reducing the demand for properties. As demand weakens, prices fall further, discouraging more sellers from listing their homes. And so on.
The outlook for San Francisco’s housing market is uncertain. Some experts believe that the market will bounce back once the pandemic is over and the economy recovers. They point to the city’s unique attractions, such as its culture, diversity, innovation, and natural beauty. They also note that San Francisco still has a strong base of tech companies and workers who will continue to drive growth and innovation.
Others are more pessimistic. They argue that San Francisco’s housing market is facing structural problems that will not be easily resolved. They cite the city’s high taxes, regulations, bureaucracy, homelessness, crime, and social unrest as factors that will deter potential buyers and investors. They also warn that San Francisco’s housing market is vulnerable to external shocks, such as another financial crisis or natural disaster.
Whatever the outcome, one thing is clear: San Francisco’s housing market is no longer the envy of the nation. It is now a cautionary tale of how a boom can turn into a bust.
