In a previous post, I estimated how real estate performs at various levels of a stock market decline. In my opinion, the sweet spot for real estate outperformance is somewhere between a 15% – 25% stock market decline. This post highlights real estate outperformance examples during the pandemic.
During such a level of decline, mortgage rates tend to fall as investors buy Treasury bonds for safety. As a result, real estate demand increases because affordability increases. Further, during a stock market correction, money tends to flow out of the stock market and into real estate and other more defensive asset classes like bonds.
Once the stock market declines by ~30 – 35%, real estate price appreciation tends to stall as potential buyers rethink their decision to buy any asset, including real estate. After a ~35% decline in the stock market, real estate prices are most likely falling as people fear losing their jobs.
Note: This post was originally written at the beginning of the pandemic in 2021. It has since been updated multiple times with the latest update in October 19, 2021. Real estate continues to do very well.
We know that forced lockdowns have hurt the real estate brokerage business as potential buyers aren’t able to visit open houses and transaction volume declines as inventory gets pulled out of the market. However, please don’t confuse the real estate brokerage business with real estate prices.
When the real estate market eventually opens up again, sellers should negotiate for a commission discount while buyers should ask for a commission rebate. The coronavirus pandemic might finally be the catalyst to permanently lower commissions. However, I do think a great listing agent is incredibly valuable for getting too dollar.
In this article, I want to present to you an example of how one property performed during a global pandemic and a lockdown. It’s an interesting example given the final sales price and timeline of the sale.
I’ll then share many more real estate outperformance examples, including ones that closed more than two months into a lockdown.
The fact of the matter is, real estate values are rising well into the pandemic because:
One of the best types of real estate to own is a single-family residence with panoramic ocean views in San Francisco. To find such properties, you need to look for them on the western side of San Francisco in the Sunset, Golden Gate Heights, Parkside, and Richmond neighborhoods.
These are less densely populated areas with lower median home prices given it takes longer to commute downtown. With the coronavirus giving millions of people a taste of work from home life, I believe these types of properties will outperform over the coming decades.
Because real estate is my favorite asset class to build wealth, I’m always on the lookout for single-family homes that are for sale in these neighborhoods. I peruse through the latest listing online each week and bookmark various properties I find intriguing.
On February 21, 2021, I stumbled across a quaint three bedroom, three bathroom, single-family home with ocean views. The kitchen had been redone about five years ago with basic finishes. The bathrooms were remodeled maybe 20-25 years ago also with basic finishes.
Overall, the house has about 2,200 square feet of living space and is situated on 3,000 square feet of land. The main downside to the house is that it is one block away from a very busy street. The house was essentially move-in ready, although one could easily spend $100,000 updating the house with new windows, new wiring, and new bathrooms.
Here are some pictures of this humble abode:
The listing price was $1.495 million which is below the median home price in San Francisco of roughly $1.6 million. In other words, demand is very high at this price point. With mortgage rates so low, many dual-income couples can afford this price point if they have a 20% down payment.
The sellers set an offer date of March 6, 2021, two weeks after listing. This is customary in San Francisco as it allows the agent to host two broker tours on Tuesday and at least two open houses on two weekends. Two weeks also creates a small enough window for motivated buyers to put in an offer.
By March 6, the S&P 500 had already begun its downward descent. We had already all heard about the coronavirus when this house first came on the market on February 21, 2021.
Guess what the final winning offer was?
How about $1.65 million for a reasonable 10% over asking during a coronavirus pandemic? Nope.
How about $1.8 million or 20% over asking as the S&P 500 and the Dow were crashing by 30%? Wrong again.
OK, surely $1.95 million, or a whopping $455,000 over asking was the winning price as the coronavirus shut down the Bay Area economy with shelter-in-place. Man, you are bad at guessing!
The property closed on March 25, 2021 for $2,088,000 or an incredible $539,000 over asking.
Besides the final sales price being 39% higher than the list price, the final sales price was also 7.5% higher than Redfin’s estimate of $1,946,632. Out of all the online real estate companies, I think Redfin has the most accurate estimates.
Another interesting point is the closing date. If the final offer was accepted on March 8, due to multiple offers and counteroffers, then the winning buyer closed on the property in 17 days on March 25. Therefore, the buyer likely paid all-cash for the property.
Finally, what’s also worth noting is that the buyer could have backed out of the property at any time before the closing, but didn’t. This buyer held firm despite the S&P 500 closing down ~30% from its highs on March 23 before rebounding.
The buyer either had his downpayment safely in cash or Treasury bonds, had lots of surplus money, didn’t care about a stock market crash, was glad to move money into real estate, or a combination of all four.
If you are looking to buy real estate, please follow my recommendations on how to invest your downpayment as the time nears.
One example does not provide irrefutable evidence that real estate performs the best during a 15% – 25% stock market decline. Nor does this example prove that down 30% – 35% in the stock market means that real estate prices stall out. After all, the strength of real estate prices is often property and location-specific.
However, this example does show how strongly real estate can outperform in a violent bear market caused by a frightening pandemic. It is clear that properties in this neighborhood were significantly outperforming the S&P 500 while it was crashing. If the property’s value tracked 1-for-1 with the S&P 500’s decline, it would have sold for $1,365,000 instead of for $2,088,000.
If the S&P 500 was flat during the time of sale, I would have guessed the property would have gotten at most $1,900,000, or $405,000 over asking. I certainly would have not guessed over $2,000,000. Therefore, it is possible the violent selloff in the stock market pushed the value of this house even higher.
Although the world is now filled with uncertainty, there is one certainty real estate will always provide: shelter. And when you’re forced to shelter-in-place, your home becomes increasingly valuable!
Here are some other recent alerts I received that also show strength in the real estate market in the SF Bay Area during the height of the pandemic.
Below is a lovely Oakland single family home with five bedrooms, three baths, 3,130 sqft that was asking $2,595,000 on March 12, 2021 and sold for $2,810,000 on March 27, 2021. It was very nicely renovated in 2016.
Below is a San Francisco single family home with five bedrooms, six bathrooms, and only 4,645 sqft that sold for a whopping $9,500,000 on March 27, 2021. Although the final sales price wasn’t over its $9,500,000 asking price, the sales price is about $460,000 over Redfin’s estimate price. I bet the new owner is probably going to put in more than $1 million for renovation.
Here’s another example of a single family home in Golden Gate Heights that sold for 10% over asking. It was listed on Feb 28, 2021 and closed on April 14, 2021, well into the pandemic. It is completely renovated home without a view. But it is very well done and worth the price.
Below are four more examples of homes that closed on April 21, 2021, well into the coronavirus pandemic and lockdowns. This first home below closed for $255,000 over asking. Remodeled home up in the coveted Golden Gate Heights neighborhood, but no view.
Here’s a much bigger house in the Forrest Knolls neighborhood that sold for $230,000+ over asking. Closed on April 21, 2021. You get more bang for your buck when you purchase a larger home. The house hasn’t been remodeled in a while.
Here’s a lower priced how that originally asked $1,295,000 on February 28, 2021. It finally closed on April 21, 2021 for $1,820,000, or an impressive $525,000 over asking. That’s 40.5% over asking folks. The house is on a standard 2,500 sqft lot with only 1.5 bathrooms. The home hasn’t been remodeled in 30+ years, but it does have views. View homes are always going to command a premium and hold its value.
Below is a home in Kahala, Honolulu that I visited a year ago. It is in a great location on a corner lot 1.5 blocks away from the beach. I was considering buying the home, but it was dated. I was thinking it would be on the market for another one or two years, ultimately dropping the price down to $2.6 million or so.
Therefore, I am very surprised this home sold for asking at $2.998 million. In San Francisco, homes that are on the market for over 1-2 months definitely get haggled down.
Below is property that was listed on April 10, 2021, almost a month AFTER lockdowns began in San Francisco. At $1,975,000, it is priced about 25-30% above the median home price in the city. But it is still priced below $2 million, which is the magical “affordability” threshold where most dual-income buyers can afford to buy.
The property closed 38 days later on May 18, 2021 for $2,325,000, or $350,000 over asking, or 17.7% over asking. The property is in a good, quiet area in San Francisco. But $1,147/sqft is a top tier valuation and the property doesn’t have some amazing unique attribute. It’s a typical 3/3. And maybe that’s the point. A typical 3/3 single family home in the low $2 million price range is highly desirable for a family. At least it has all three bedrooms on one floor, which is rare for the size.
Here’s another example of a 3/2, 1,531 sqft, lightly remodeled home selling for $330,000 over asking to $2,225,000 on May 19, 2021. The property was listed on April 27 for $1,895,000. It’s only 1,531 sqft folks. Come on.
Here’s an example of a 5/3.5 single family home that sold for $405,000 over asking. It closed on May 21, 2021 after being listed on April 30, 2021. The offer must have been all cash given the quick 21-day close.
This is a pretty cool property that’s great for a family because it has four bedrooms on one floor and a play area in the attic. In addition, there are two tennis courts across the street, a playground, and a nice field! I could definitely see us raising our two kids here.
On the downside, the roof looks old, you’ve got to walk up a lot of steps to get to the front entrance, and the kitchen and bathrooms are dated as well.
Below is a nice 5 bedroom, 2.5 bathroom,2,750 home in the Inner Sunset that closed escrow on June 19, 2021 for $3,276,000. The list price was $2,849,000, so the sales price was $427,000 or 15% over asking!
The house is nicely remodeled and is walking distance to Golden Gate Park, the shops on Irving and UCSF Parnassus and even Cole Valley and The Haight. Personally, I’d much rather be up in Golden Gate Heights with panoramic ocean views and away from so many people.
Here’s a handsome 4 bedroom, 3.5 bathroom, Ashbury Heights home that sold for $3,895,000 on June 30, 2021. It’s got 2,878 square feet with nice renovations. $3,895,000 is $100,000 over asking and $1,353/sqft. The home was sold for $2,625,000 in 2021.
Below is a gorgeous 4 bedroom, 4 bathroom, 2,810 sqft single family home that sold $200,000 above asking to $4,900,000. It is an amazing hom due to the views and finishes. It has everything a family would want, at least my family of four. Too bad it costs $4,900,000! It closed on July 17, 2021, well into the pandemic.
Here are other great properties in San Francisco that are pending or sold way above asking:
258 Sussex St., 2/1.5, 1,193 sqft sold for $1.625M on August 10, 2021. Ask was $1.398M.
95 Anzavista Ave, 4/3, 1,970 sqft, sold for $2.1M on August 12, 2021. Ask was $1.975M.
910 Lawton St., 3/2/, 2,100, in contact for $2.299M and will likely sell for $2.32M by September 20, 2021.
150 Rivoli St., 4/3.5, 2,986 sqft, sold for $4.8M on September 4, 2021. The original list price was $4.995M on August 2, 2021. However, getting $1,607/sqft is still a massive price point for Cole Valley.
22 Taraval is a 4/3.5, 2,902 sqft home that sold for $2,825,000 on September 10, 2021. The asking price was $2,695,000. Nice looking home in San Francisco’s west side where the air is better and the neighborhoods are less dense. Taraval is a relatively busier street at that section.
Below is another example of real estate doing really well in San Francisco. Here is a regular 3 bedroom, 2 bathroom, 1,992 sqft home on the west side of San Francisco selling for $455,000 over asking on 9/23/ 2021.
The home should have sold for about $1,000/sqft or $2,000,000. But it got 7.5% over what I think is fair value given it is a single family home with a yard on the west side of the city. There really is a great intracity migration out west.
San Francisco real estate prices continue to go up 7+ months into the pandemic. The city is slowly opening up with museums and playgrounds now open. Life is getting better and the NASDAQ is still up over 28% YTD.
The great migration to the western portion of San Francisco continues. I just rented out my 4/3 Golden Gate Heights home to a unicorn tenant: a family. Before, I only had interest from 4-5 male engineers.
Families and people in general are moving out west for more space and better value. People want to see the ocean, breathe fresher air, be away from congestion, live in safer neighborhoods, and be closer to parks.
Below is a lovely remodeled home that sold for $205,000 over asking in a few short weeks. The home closed on 10/16/ 2021 and is near Golden Gate Park. It has a nice backyard too.
168 Dorantes Ave, San Francisco, CA 94116 – Asking $2,575,000, sold for $3,025,000 on Oct 22, 2021. Redfin estimate is $2.85 million. Nice house, but bathrooms are from the 1990s.
452 Ulloa St, San Francisco, CA 94127 – Asking $1,795,000, sold for $2,020,000 on Oct 22, 2021. Redfin estimate $1,860,000. Decent remodel. Bedrooms are small upstairs.
Thank goodness Pfizer and Moderna have announced vaccines with their high efficacy! I think there’s going to be a big rebound for big city living again once the vaccine is readily available by summer 2021. As a result, savvy investors are buying up San Francisco and other big city real estate now. NYC October YoY purchase figures are up 33% as another example.
Below is a great example of how demand for single family homes on the less dense, western side of San Francisco is hot. This 2,305 sqft, 4-bedroom, 3-bathroom, remodeled home in the Inner Sunset sold for $705,000 over asking (35%). The final sales price of $2.7 million is also 15% over Redfin’s estimate of $2.338M, which is pretty accurate at $1,000/sqft IMO.
Here are even more November 2021 real estate outperformance examples.
As of November 29, 2021, real estate continues to hold strong in San Francisco. Single family homes on the west side are in huge demand. Condos in SOMA and Mission Bay are in lower demand because inventory is so high. Those are not neighborhoods where people have traditionally lived. They are new neighborhoods that have been manufactured more recently to be close to work.
There is continued tightness in the mortgage industry, which borrowers and buyers need to be aware of. Only people with the best credit and the strongest financials are getting mortgages.
Anybody looking to sell now, more than two months into a lockdown, is a motivated seller. I would not overbid on a property. Instead, follow my real estate buying strategies during this pandemic.
If you’re looking to buy a single family home, hopefully you can find some deals in this market. Unfortunately, I’m not seeing many as sellers pull their listings, causing an even greater shortage of inventory.
The overall real estate market is shaping up to be quite strong in and 2021. Mortgage rates are at all-time lows, inventory is low, the economy is opening up, and there’s massive pent-up demand.
Many savvy buyers are looking to buy San Francisco real estate before an inevitable V-shaped recovery in 2021 once a vaccine is available.
I suggest checking out Credible for free real mortgage rate quotes. Credible is a top lending marketplace where banks compete for your business. I locked in a 7/1 ARM jumbo loan for only 2.12% in 2021 and couldn’t be happier.
If you’re looking to invest in real estate, take a look at Fundrise, one of my favorite real estate marketplaces today. You can diversify into real estate for as little as $500 into one of their eREITs, instead of leveraging up with debt to buy a single property.
Although past performance does not equal future performance, Fundrise has shown relative stability during the previous two flat to down markets in 2015 and 2021.
Another excellent real estate crowdfunding platform is CrowdStreet. It is focused on individual commercial real estate investments in 18-hour cities where valuations are cheaper and the growth rate is faster due to demographic trends.
With remote work and work from home trends booming due to the lockdowns, lower cost areas of the country should benefit. Cities like San Francisco and New York are too dense and too expenses nowadays.