A palatial five-bedroom home built in 1932 with stained-glass windows, hand-carved doors and jaw-dropping hillside views of downtown San Francisco hit the market in April for $9.5 million. In June, the owners dropped the price to $7 million.
It went up for auction last week with an opening bid of $4.5 million. No offers emerged.
That kind of pullback is a stark turn for a tech-fueled city long marked by extreme wealth and ever-escalating home prices. Now, as the U.S. housing market slows from a pandemic-era frenzy, the San Francisco area stands to be among the hardest-hit places.
Higher mortgage rates are driving up the cost of ownership and fewer people are willing or able to pay a premium for living in the country’s most expensive region for housing. And the area’s wealth economy is shuddering under the weight of tech-industry layoffs, falling stock prices and plunging cryptocurrencies.
The real estate market is already taking a hit: The San Francisco metro area’s median home price fell 0.5% in June from a year earlier to $1.58 million, according to Redfin Corp. It was the only one of the country’s top 100 metro areas to record a decline, the company’s data show, even as the price was still the highest in the U.S..
“The bloom is off the rose,” said Steve Gallagher, a Coldwell Banker Realty agent selling the 1932 home. “Even big buyers who’d pay cash for a $10 million home are thinking twice. It’s the economy, interest rates, the stock market, inflation.”
San Francisco’s economy is already struggling to rebound from the pandemic as remote work proliferates, with tech companies including Twitter Inc. and Salesforce Inc. cutting back on office space. For-lease signs plaster shuttered cafes, restaurants and drugstores that depended on office workers for business. Homeless encampments, open-air drug use in some neighborhoods and crime concerns aren’t helping to lure people back.
Until this year, many San Franciscans felt the wealth effects of an economy flush with easy money. As startups ballooned into unicorns, an influx of tech workers transformed much of the city and pushed home prices up almost 120% in the past decade, according to Redfin.
But some residents fled from those high prices during the pandemic, and tech companies have signaled they’re open to hiring from anywhere in the country—or are slowing hiring completely. The venture capitalists who financed the city’s startup culture have retreated to Sand Hill Road near Stanford University or to working virtually from the cloud. And the prospect of a recession adds a sense of gloom.
“Most people didn’t cash in, but they felt better,” said Ken Rosen, chair of the real estate department at University of California, Berkeley’s Haas School of Business. “The froth is gone, so now they feel worse.”
Some tech executives and engineers who bought property by borrowing against stocks, a move that avoided capital gains when values were at their peak, are now having to refinance with more expensive mortgages, according to Aaron White, chief growth officer at advisory firm Vista Wealth Management in San Francisco.
“A lot of people who didn’t sell last year at the peak are regretting it,” said White, whose firm has about $3 billion under management. “And we don’t see people asking for crypto.”