Why the ultra-rich are buying way fewer San Francisco mansions

San Francisco’s super-rich have pumped the brakes on buying ultra-luxury estates, many of which are dropping sharply in price to entice buyers. 

After an overheated pandemic peak, home sales and sales prices across all segments have dipped—but the city’s most expensive homes have taken an even steeper dive. 

“The market has clearly changed, and price points are being pushed down,” said Payton Stiewe with Artemis Real Estate. “That ultra high-end market is definitely on the quiet side, and prices in the $10 million-plus segment are taking a haircut.”

A property at 3410 Jackson St. in Presidio Heights was put on the market in February at $23.5 million before eventually selling at $18.5 million in May.

Less than a mile away in Cow Hollow, a property at 2660 Scott St. that was listed for sale in January at $16.5 million sold in July at $13 million.

In Sea Cliff, a property at 9 25th Ave. that first went on the market last September at a $32 million asking price, saw a series of price drops before selling in April for $20 million. 

Hanne Vastveit, a broker with San Francisco firm Avenue 8, pointed to the rise in interest rates and stock market uncertainty as factors in the drop-off in luxury home sales and downward pressure on prices.

In July, the median price per square foot for homes over $5 million in San Francisco was $1,468, a more than 20% decline from the number one year prior, based off three-month rolling data.

Sales for homes over $5 million in San Francisco are down 56% year to date in 2023 compared with a year prior. In the ultra-high-end segment of $10 million+ homes, sales are down 45% over the same period, according to data from the Multiple Listings Network, a database compiled by residential brokers. 

The sales price to list price ratio of luxury homes this year—a measure of how sales prices compare to where homes are listed—sits at 96%, compared with 104% in 2022. That 8% difference could mean $800,000 for a $10 million home. 

Brokers like Stiewe attributed some of the drop-off in San Francisco to larger concerns among residents about urban problems like homelessness and public safety.

“We have plenty of clients that have moved out of Pacific Heights and the Marina Boulevard area because of the feeling that they’ve just had enough,” Stiewe said. “The more established families are those that are a bit more sensitive to the changes in the city, but the younger, newer buyers coming in are not at the point financially to really buy these big mansions.”

Stiewie, who works in both Marin County and San Francisco, said North Bay luxury properties have had a tendency to hold their value more consistently even through some of the market doldrums. 

In the first seven months of the year, home sales over $5 million in San Francisco have failed to reach levels seen in 2019 or 2018. On the other hand, luxury home sales in Marin, Santa Clara and San Mateo counties have exceeded pre-pandemic numbers during the same period.

“People who’ve been through many cycles in the city know it's a boom-bust town,” said Arrian Binnings, a co-founder of Artemis Real Estate. “When it’s booming, it’s amazing. And when it busts? Well, it’s got an ugly side, too.”

Binnings said the higher up the property ladder, the more susceptible homes are to wild swings in value because of the relatively few buyers at that price point. But he made sure to note that some of the data and perception around the current downturn is skewed by the frenzied nature of the housing market during 2021 and the beginning of 2022.

“It’s like when you give a kid a toy and you take it back,” Binnings said. “The psychology from a lot of people is ‘Well, we’re going to get our toy back.’”

Danielle Lazier, a broker with Vivre Real Estate, said San Francisco’s negative perception issue has cut the number of interested buyers currently in the high-end market. 

“It still comes back to consumer confidence. Are you someone who’s familiar with the city and feels we’re more or less at the bottom? Then it might not be a bad time to buy a premium property,” Lazier said. “But if you’re more pessimistic, you’re thinking, 'I’d rather keep my liquidity.'”

Lazier said she’s found high-net-worth families moving to San Francisco, drawn by the city’s strong labor market and tech industry, have taken to renting expensive properties instead of buying.

“Very expensive rentals are in high demand right now, in the realm of $30,000 or $35,000 a month,” Lazier said.

Although affluent purchasers at this price point tend to deal mostly in cash, brokers say macroeconomic issues have also played a role in price drops.

First Republic Bank, which was shut down by regulators and sold off to JPMorgan Chase in May after a bank run, made so-called jumbo mortgages a centerpiece of its business model. The company was well-known for offering lower-than-market rate mortgages as a sweetener to attract clients.

“First Republic was our No. 1 go-to bank for high-end real estate financing, and nobody has filled that gap,” Stiewe said. Although brokers say they’ve heard of piecemeal deals, and institutions like Redwood Credit Union are seeking to expand lending portfolios, no company has really embraced jumbo mortgages.

Mortgage lock-in, a phenomenon where existing homeowners have avoided purchasing new properties because of higher interest rates, has also slowed transactions. 

Instead, Stiewe said many homeowners in neighborhoods like Pacific Heights have taken the opportunity to undergo renovations and upgrades.

Oftentimes, expensive properties are floated off-market for months to get a sense of buyer interest prior to a public listing. They can also come with protracted negotiations, said Alexander Fromm Lurie, a luxury real estate advisor with the Lurie Group at Compass.

Although the bulk of ultra-luxury properties are located in Northern neighborhoods like Pacific Heights, Presidio Heights and the so-called Gold Coast, Lurie said Downtown’s challenges have impacted the high-end condo market in neighborhoods like SoMa and South Beach. 

“There are just fewer buyers there; there are fewer people who want to be living there and specifically spending tens of millions of dollars to do so,” Lurie said. 

The downturn in the Downtown condo market, however, has created some opportunities for some of Lurie’s ultra-wealthy clients. He said a handful have purchased lower-priced condos as investment properties with the idea of flipping them for a profit when interest rates fall and market conditions improve.

Brokers report buyers are choosier than in the market’s pandemic peak, and the slower market means more leverage for buyers who are generally seeking turnkey or ready-to-move-in properties.

“Oftentimes, that’s still not enough," Binnings said. "It has to be well presented, it has to be competitively priced and it has to be in a desirable area. It’s very house-dependent."

Buyers have more leverage to ask for contingencies on an offer.

“Contingencies leave the door open for renegotiation,” Binnings said. “So we're in a market right now where sellers should not necessarily be counting on their agreed-upon contract price to actually stick until contingencies have been removed.”

The summer months are typically a slow time for luxury home sales, but brokers said they aren’t holding their breath for a dramatic fall recovery.

Most brokers say they expect to see more of the same until there’s a broader recovery of the city, along with an indication that the era of rate-tightening is coming to an end.

“The last year has certainly been slower in terms of the ultra-luxury price point. That’s just objectively true,” Lurie said. “It’s more of a political conversation, but I think you’re going to see more interest come back into the city as San Francisco rights itself.”