San Francisco Luxury Real Estate Market Forces and Trends

05 Dec San Francisco Luxury Real Estate Market Forces and Trends

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San Francisco’s luxury real estate market is one of the hottest in the world. It’s been growing steadily for decades and it shows no signs of slowing down. In fact, as global wealth increases, the market is growing faster than ever and diversifying, too. With new buyers from all over the world taking an interest in San Francisco’s luxury homes, realtors like us have an opportunity to broaden our skillset to take better advantage of shifts and nuances in the currents and eddies that keep the luxury real estate market flowing.

In our post today, we’re going to explain the ins and outs of San Francisco’s luxury real estate market, and how shifting forces in the market are changing the game.

Luxury Real Estate

In the San Francisco real estate market, about 80% of sales, what we might consider the core of the market as a whole, are in the $1M to $4M range. While there are certainly outliers, it’s this segment that comprises the real bread and butter of the industry. While “luxury” is a relative term, since San Francisco’s real estate market is so competitive, our luxury real estate market generally starts in the the $3 Million range. In addition, square footage is different for San Franciscans. Most of us, even luxury home buyers, will tend towards lower square footage and less outdoor space. Fortunately, the Bay Area has easy access to beautiful outdoor spaces, and our temperate weather means that we can get out and enjoy our cities throughout the year.

Our buyers are diverse, representing relative newcomers to California, the tech industry, and of course locals. Emerging consumer groups in Asia, the Middle East, and Europe, as well as their North American counterparts, share many buying trends in their preferences, like a preference for urban environments, but they have a lot of differences too.

Let’s look at the data:

Location

While North American buyers still had a very slight preference for suburban environments, the difference was negligible. 46% of respondents preferred suburban over 45% preferring urban. Rural was preferred by only 3% of respondents. Europe’s 41% majority preferred an urban environment, but the rest were split almost down the middle between suburban and rural preferences. In Asia and the Middle East the overwhelming majorities (76% and 74% respectively) preferred urban living, but a full 12% of Middle Eastern respondents weren’t decided yet. It’s possible that many Middle Eastern buyers simply aren’t as familiar with the pros and cons of rural living, and some may still be open to buying rural properties after a bit of exposure.

Size

North Americans tended to prefer larger homes. Less than a third expected to settle for less than at least 3,000 square feet, with the majority in the 5,000 to 10,000 range (skewing slightly towards and over 7,500). Next were Middle Eastern homebuyers, whose responses were more or less in line with North American consumers. European buyers overwhelmingly preferred homes in the sub-3,000 square foot range, with nearly a third aiming for under 1,000, which is more or less in line with Asian buyers. A quarter of Asian buyers expected to purchase a home in the 1,000 to 2,000 square foot range, but less than a third were open to buying a home over 3,000 square feet.

Style

In terms of architectural style, trends emerged to suggest a Western preference for traditional homes, and an Eastern preference for contemporary or modern ones. European and Asian buyers were more likely to consider lofts, aligning with their preference for smaller square-footage, while Middle Eastern buyers were the most likely to purchase Mediterranean-style homes, or beach-style ouses. Of the four regions, Asian buyers had a broader range of responses (each respondent was able to check multiple boxes) suggesting less of an overriding preference for style than the other regions surveyed.

Budget

Again, North American and European buyers were more or less aligned in their responses. Their budgets tended to skew lower, with more than two thirds of North American buyers, and more than half of Europeans, in the sub-$2.5M range. Asian buyers were almost evenly distributed across the ranges (from $1 Million up-to or exceeding $5 Million), while Middle Eastern buyers showed a significant preference for homes exceeding $5 Million.

Emotional Import

A home is more than just an investment. There’s an emotional component, usually described in terms of feelings of family, security, and peace of mind, that goes into the decision to buy any piece of real estate. Of the four regions, only North Americans did not rank “an emotional tie” as the number-one most important factor to their purchasing decision. Instead, they overwhelmingly voted “physical space” (including size, location, layout, and so on) as their primary factor. This is likely an effect of a sort of culture-shock. It’s easier for a North American buyer to feel secure and “at home” in their homeland than it would be for an expat, someone who will be forging new emotional ties in a more sudden way, so the emotional import of their purchase becomes paramount.

Data presented have been sourced from YouGov Affluent Perspective 2018 Global Study, reported among 528 participants across 12 countries in each of the four named broad regions. Each participant intends to purchase a luxury home, defined above, in the next 3 years.

Demographic Trends Summary

Despite the huge array of practical factors that go into a home purchase, the emotional underpinning of making a space into a home tended to be the most important factor for luxury real estate buyers. In Eastern regions, the wealth to purchase luxury real estate overseas is relatively new — measured in decades, rather than centuries. In those markets, the home as a display or celebration of wealth has a slightly different character than it does for Western buyers, and purchasing decisions are impacted by those demographic preferences.

In many parts of Asia, China in particular, owning houses is seen as a sound long-term investment, and it’s more common to buy another one rather than to sell and upgrade. Asian buyers indicated a strong intention to buy, but the least intent to sell than other respondents. Those market influences may keep luxury homes off the market, and make the buying process gradually more competitive.

That trend towards competition makes this a great time either to buy, before prices begin to climb, or to list, while luxury real estate, especially for the global market, is an increasingly hot commodity.

Ruth Krishnan and the Krishnan Team

Ruth Krishnan and the Ruth Krishnan Team are ranked in the top 1% of San Francisco realtors. They’ve been successfully fording the wildly competitive San Francisco luxury real estate with care, attention, and pride, and they go the extra mile delivering results for their clients.

If you’re dipping your toes into San Francisco’s luxury real estate market, schedule an appointment today, and find out what sets the Krishnan Team apart from the rest.

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