Understanding the San Francisco Luxury Home Market

Understanding the San Francisco Luxury Home Market

  • Austin Klar
  • 10/25/22

Real estate in San Francisco is some of the most coveted in the country. Known for stunning architecture, the candy-colored Painted Ladies, and iconic views in all directions, San Francisco is home to some of the most spectacular, unique, and historic homes.  With that spectacle comes an equally grandiose price—San Francisco real estate is the most expensive locality in the most expensive state in the country. These elevated price tags have been the norm since the housing market and tech industry bounced back after the Great Recession.
Gaining entry to the market, especially as a first-time luxury real estate buyer, can be tricky and should be considered an accomplishment in and of itself.  In an area as expensive, demanding and competitive as San Francisco, perhaps the most critical step is finding a real estate expert for your neighborhood of interest who can educate you on the most important factors and considerations in taking the plunge into luxury real estate.

What is “luxury” real estate?

What qualifies as luxury is difficult to pin down. The term evokes images of sumptuous design features, soft fabrics, and a high-end lifestyle only a select few can enjoy.  Climate-controlled wine cellars, infinity pools, expansive closets full of vintage designer clothes and bags, water views, at-home gyms, and immaculately manicured grounds, are but just a few elements luxury buyers demand. Celebrity architects pore over every line and innovative detail. World-renowned interior designers meticulously style every inch with elegant colors, fabrics, and coveted artwork. Luxury is about what high-end buyers want, not what they “need,” because they can afford to be the most selective bunch.
More than just these details and finishes, luxury real estate is determined by several other factors, especially location and, of course, price. For example, $2 million may not get you a “luxury” property in San Francisco, as the median price for a San Francisco home based on sales from January 2021 to present is about $1,800,000, but paying the same amount in a small North Dakota town may get you the grandest estate in the area.
In general, price is the dominant factor and, at least according to Redfin, one enters the luxury real estate market when one reaches the top 5 percent of real estate by pricepoint within the particular locality at issue. In San Francisco, depending on what particular neighborhood in which you’re looking, that could mean homes with a price tag of at least $5,000,000.

The luxury market in San Francisco is still booming!

If you’ve been on social media or read news regarding the housing market anytime in the last six months, you’ve probably seen headlines with dismal outlooks and sensational claims that the housing market is crashing or will crash in the very near term.  But none of those headlines are actually supported by hard data, at least when it comes to the luxury market in San Francisco.
Of homes priced over $5,000,000, the median sale price has remained almost exactly the same year over year–$6,650,000–notwithstanding the surge of interest rates and overall downturn of the broader economic market in the first half of 2022. And the price per square foot of San Francisco homes above $5,000,000 rose to $1,684 / sq ft year to date from $1,573 / sq ft the same period last year.
The relative strength and resilience of the luxury sector is not entirely surprising, as the typical buyer in that price point is likely less influenced by changes that impact the broader market more significantly, such as a rise in interest rates.  In fact, the prevalence of cash buyers at that price point makes the going interest rate for a 30-year fixed mortgage largely irrelevant. But what is perhaps surprising is that quite possibly the most impacted sector of the now bearish equities market has been big tech, largely based on the Bay Area and, in particular, San Francisco.  Yet despite big tech taking a huge hit, the value of homes above $5,000,000 has remained steady. Although prices are largely the same and there has not been significant value erosion, overall volume of luxury sales has slowed, to 98 sales year to date, down from 127 sales during the same time last year.

Future trends

The pandemic had wide-ranging effects on the housing industry. In this unprecedented time, the government extended various real estate-related moratoriums on both businesses and residences, which kept homes and apartment buildings from foreclosure. Government assistance was more widely available, allowing companies to stay open and investment buildings to stay full. Those programs are now coming to the end of the previously agreed-upon term dates, meaning the market may see a shift in inventory. Time will tell, but it is possible the market will soon be flooded with new properties and investment opportunities. If investing is of interest, consider lining up your financing and investment plans now and be ready to capitalize on future opportunities.

Work with a San Francisco real estate professional

If you are interested in exploring the Bay Area luxury home market, contact real estate expert Austin Klar today for more information.

Work With Austin

Austin's attention to detail and mastery of finance and complex contracts enable him to focus on what matters most to his clients.

Follow Me on Instagram