San Francisco Buyers Bring Its Luxury Housing Market Back to Life

Apr 30

A recovery is under way in the Bay Area, as interest-rate shock finally wears off and stock-market gains fuel high-end home sales

By E.B. Solomont for The Wall Street Journal, April 25th, 2024

San Francisco’s luxury housing market is bouncing back from its doom doop.

After being battered by slumping tech stocks and interest-rate hikes, buyers and sellers are back in action. Agents said buyers have made peace with current rates—even with uncertainty around when rate cuts will be—and some are reaping the rewards of the AI boom.

Despite tech layoffs last year and recent stock-market gyrations, the job market is stable and consumer confidence in luxury real estate is rising. Here’s a breakdown of how the city’s luxury housing market is recovering.

Pending sales are up

In March, pending home sales in San Francisco hit the highest level since May 2022, according to a Compass market report. Pending sales last month were up 8.3% compared with the prior year, the report said.

“We’re not gangbusters—it’s not that kind of market,” said Compass agent Max Armour. “But it’s a very healthy, active market.” Armour said interest-rate hikes in 2023 sent buyers into a tailspin and the market dried up. “The market just had to go through that internal process to reacclimate,” he said. That austerity has passed.

Homes are selling

As interest-rate shock wore off late last year, buyers jumped off the sidelines. As of March, single-family home sales were up 9.9% compared with March 2023. Condo sales were still down 20.2% year over year. (Condos have lagged behind because there was a glut of unsold inventory in 2023, and lackluster sales downtown—the area hardest hit by doom loop stories—are still dragging down the overall market, agents said.)

San Francisco’s luxury market is heating up—with more homes going into contract than last year, when the market stalled.
Local real-estate agents said buyers were sidelined in 2023 with “interest-rate shock.” They’ve moved past that, and closed single-family home sales volume in 2024 is higher than 2023.
At the top of the market, sales of higher-priced homes are especially strong. Agents said the stock market is driving luxury sales.
There is very limited supply. One reason is because sellers are locked into low-interest rates.
With limited supply, buyers are getting into bidding wars. Agents said consumer confidence is back.
In general, properties are also selling faster than they did last year. Agents said buyers know to strike now or they will miss out.

Gregg Lynn of Sotheby’s International Realty said the market shifted noticeably in December, after the Federal Reserve signaled it would cut rates in 2024. (This month, the Fed said it will keep rates steady for a bit longer due to inflation.) Still, Lynn said one of his listings—a penthouse in Pacific Heights that had been lingering on the market for more than three years—went into contract within 30 days of the Fed’s December rate-cut announcement, which “was kind of a dog whistle that sent strong buyers out in the market,” he said. The unit, first listed for $25 million in 2019, closed for $16 million in January.

Sales above $3 million surged 54.2% in March 2024, compared with the prior-year period.

Luxury sales have surged

Luxury buyers have generally been less susceptible to interest rates and, notwithstanding recent dips, stock market gains have fueled real-estate sales. “The more affluent have so much of their household wealth in the stock market,” said Patrick Carlisle, Compass’ chief market analyst in the San Francisco Bay Area. “When they see the soaring values we have—with the stock markets hitting new highs in March—they feel wealthier than they did six months ago. That jacks up their optimism about the future.”

At the top of the luxury market, sales of higher-price homes are especially strong.

In Presidio Heights, a circa-1909 mansion renovated by Robert A.M. Stern Architects was listed for $14.95 million in mid-March, according to Zillow. It was marked pending on April 4.

Chris Lim of Christie’s International Real Estate said blue-chip neighborhoods like Pacific Heights and Presidio Heights notched 15 sales north of $10 million and three above $20 million during the first three months of the year. Downtown, he is seeing movement in luxury condos, with units going into contract after being “largely dormant” in 2023.

Inventory is still a problem

Like many U.S. metros, lack of supply is one of the biggest factors impacting San Francisco’s luxury market. As of April 1, listings were flat compared with the prior year. About 27% of listings on April 1 were single-family homes.

“It’s always been a problem, and it’s exacerbated by the fact that a lot of sellers are locked into 2.5% interest rates,” said Scott Brittain of Sotheby’s. “Buyers have a more competitive landscape that they have to deal with.”

Armour recently sold a condo in Presidio Heights for $2.195 million, after it went into contract in four days. It was an all-cash offer with the buyer paying the commission.

A Presidio Heights home sold for nearly $2.2 million after getting multiple bids. MAX ARMOUR

Bidding wars are back and prices are starting to climb

Stagnant listings and resurgent demand has led to bidding wars this spring. In March, the percentage of single-family homes that sold above ask rose 6.4 percentage points compared with the prior year.

Local real-estate agents said properties that are priced right are getting multiple offers. Armour said he recently sold a house in the Marina District for $2.2 million, roughly 10% above the asking price of $1.995 million. He said he got five offers after listing the property on Feb. 1. It was under contract by Feb. 9.

“Last year, even if you were priced right, you weren’t guaranteed a quick sale or multiple offers. You just weren’t,” he said. “Now it’s achievable.”

As of March, the three-month rolling median sale price for single-family homes increased 8.19% compared with March 2023. The three-month rolling median sale price for condos rose 3.5% year over year.

Compass’ Nina Hatvany said buyers who are still on the fence are missing out. One of Hatvany’s clients was recently outbid on a house that was first listed for $5.7 million last fall. After months of no activity, the house was relisted for $5.5 million. Hatvany’s client was reluctant to overpay and offered $5.2 million—but the market picked up since last year and the client lost out. “It’s the same house it was in the fall, and now we have two buyers bidding everyone up close to asking,” she said. “The doom loop thing is overblown, San Francisco is OK.”

Sales are happening quickly

Overall, properties are also selling faster than they did last year, thanks to buyers who are striking now for fear of missing out. In March, the average days on market for condos plunged 20% compared with the prior year period. The average days on market for single-family houses dropped 15.6% year over year.

Joel Goodrich of Coldwell Banker Realty said despite tech layoffs last year, the labor market has stabilized and AI companies are hiring, which has bolstered buyer confidence.

He recently put a $4 million house in Cow Hollow, a neighborhood next to the Presidio near Pacific Heights, under contract within two weeks.

Brittain said 75 to 100 buyers came through one of his listings—a duplex condo in Cow Hollow—within a few days of hitting the market for $2.495 million. “The open house traffic last year would have been 50% of that,” he said. He said a colleague of his recently listed a house in Noe Valley for $3 million; it went for $800,000 over asking price.