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Are the Wealthy Starting to Leave San Francisco?

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Seemingly contradictory signals in housing-market data suggest that the rich are looking to bolt.

An exterior view of row houses in San Francisco to illustrate a story about the SF real estate market and how the wealthy are leaving the city. Getty Images/iStockphoto

San Francisco’s status as a destination city for tech workers and people who hate temperature changes of more than five degrees has made it one of the most expensive housing markets in the world. After years of home prices making like tech stocks and going up, up, up, the COVID-19 pandemic has now thrown the city into a state of flux, as people are moving within and out of the city to adjust to their new pandemic reality.

San Francisco is one of two cities in the country where the overblown narrative of a pandemic-driven urban exodus actually holds true (New York, specifically Manhattan, being the other). While it will take years to definitively suss out what exactly is happening in migration patterns today, recent housing-market data is starting to signal who is leaving San Francisco — and it’s the rich.

According to Zillow’s August housing-market report, San Francisco saw a 1.5 percent uptick in available homes for sale year over year. That may sound like only a minor increase, but it puts San Francisco far ahead of other cities in the state, which are experiencing profound supply shortages. Sacramento’s market has more than 40 percent fewer homes available than it did last year, and nearby San Jose — which usually moves in lockstep with San Francisco — saw a 19 percent drop in August year over year. Rises in the number of total listings usually put downward pressure on prices and lead to homes staying on the market longer, but in San Francisco, neither is happening. Median list prices there have risen by 22.6 percent since January, and homes are selling more quickly.

“My sense is there could be a lot more expensive, higher-end listings that are driving up the list-price data,” said Zillow economist Cheryl Young. “Those tend to stay on the market a bit longer. They’ll always show up in overall inventory, and a few might be added every week as new inventory. There’s not a lot going back on the market, but there might be more stuff kicking around that’s higher end.”

So these twin trends in Zillow data — more high-priced apartments in the mix, plus more properties overall for sale — naturally create the suspicion that wealthy people are leaving the city (a position reinforced by the parallel suspicion that wealthy people are leaving New York as well). Both places have gotten more expensive because of changes to the federal tax code, notably the cap on the state and local tax deduction passed in 2017 that disproportionately impacts wealthy households on the coasts.

Much has been made about the possible impact of expanded work-from-home policies at the tech companies that dominate the Bay Area, but local realtor Tracy McLaughlin says that isn’t a motivator for the sellers she represents. San Jose, which serves as a giant corporate office park for its more chic neighbor to the north, is not seeing any outbound migration, which you’d expect if work-from-home policies were triggering an exodus. It appears that the pandemic has merely exacerbated existing conditions and accelerated changes in any given market. San Francisco’s housing market was already cooling, as prices were bumping up against an affordability ceiling, and those tax changes drove up prices. “San Franciscans might have waited until their kids were maybe 4 and 7 to say, ‘Well, we don’t really want to do private school in San Francisco — we’ll move to another county,’” McLaughlin says. “People with very young children who weren’t going to leave the city until the kids were school-age are leaving now.”

And people appear to be leaving in San Francisco in particular — not Oakland or San Jose or elsewhere in the Bay Area. Zillow’s home-price index in San Francisco grew by just 2.7 percent year over year in August, while other major California markets grew by at least 5 percent. The index for San Jose home prices grew 10.3 percent. This suggests that the added inventory at the high end is reflective of a broader market cooling that is unique to San Francisco.

Wealthy households leaving San Francisco isn’t such a bad thing for the housing market, as downward pressure on home prices is a welcome change for any renter looking to become a buyer, more so in an expensive place. But if you’re looking to buy in San Francisco, don’t expect to have an easy time of it, as it’s still very competitive. “I’ve never been busier,” says McLaughlin. “I’ve never had more visits.”