Is It a Good Time To Buy a Condo in SF?

Median condo sales in San Francisco prices were down 2.0% in 3Q20 vs. 3Q19, to $1.25 million from $1.275 million. 

This is a significant correction from the previous trend, where they rose 6.5% per year, or 20.9% cumulatively, from 3Q16 – 3Q19. 

The statistics are even more startling on a price per square foot basis, which adjusts for the fact that people might be choosing roomier places; condo price per square foot was $1,088 in 3Q20, down 5.0% from in 3Q19 and down from the 3.0% annualized trendline from 3Q16 – 3Q19 (9.4% cumulative increase). 

That means prices are effectively back to 2017-2018 levels in many instances; does that mean it wasn’t a good time to buy then? What about now?

So, is it a good time to buy a condo in SF?

We suggest analyzing this decision in the context of other alternatives, such as renting. The New York Times has a useful online calculator, and there are others available as well. We did the work for you and plugged the numbers in, and this is what we came up with:

If you can rent a similar home for less than ...

$1,918 PER MONTH

... then renting is better.


This may be a surprisingly low number to some folks – but we crunched the numbers using the most standard assumptions with few tweaks, and this is our best answer. Unless you can rent a similar condo for less than $1,918 per month, buying is financially superior. 

However, there are a ton of assumptions that go into this, and your individual situation will likely differ. One of the reasons we created ZeroDown is we believe the opportunity cost of making a large down payment on a home is under-appreciated, particularly in the Bay Area where well-timed tech stock exits have distributed vast wealth to investors. 

This calculation assumes a measly, but not unrealistic for many folks in this environment, 4% rate of return on your investments, which you would be forgoing by making a down payment instead. 

The 4.8% annual home price appreciation we assume (based on 5-year historical increase in the Case-Shiller Home Price Index for SF) needs to make up for the lost opportunity of investing that cash. 

What if instead you held a portfolio of say, 20% Bitcoin and 80% in a 2.0% interest Bank Certificate of Deposit two years ago; then your annual return would have been about 10% per year, and you would have been just as (financially) happy paying $3,414 per month in rent as you would buying. 

If you can rent a similar home for less than ...

$3,414 PER MONTH

... then renting is better.




How does this compare to October 2019?

The drop in mortgages rates over the past year, combined with the drop in condo prices, makes buying appear more favorable than it did last year. Our calculation assumes 2.75% mortgage rates today, vs. 3.75% 1 year ago. We are also going to assume that, 1 year ago, your investment rate of return was 2% higher, at 6% instead of 4%, because of the higher level of interest rates. 

The resulting break-even rent vs. buy level is over $1k higher than today, at $3,060 vs. $1,918.  In other words, last year, if you could rent a similar condo for $3,060, it was a financial coin toss; but with lower mortgage rates today, and the lower home prices, you would need a much more amazing deal on a rental to have it make sense to rent financially.

Rental rates have certainly dropped for many types of apartments, but not by 30%+, and not in a way that you could expect to lock in a 30%+ discounted rent for 5 years.    

If you can rent a similar home for less than ...

$3,060 PER MONTH

... then renting is better.


Using a 10% opportunity cost instead of 6% raises the breakeven to $4,056, compared to the $3,414 with today’s mortgage rates and other assumptions. 

In other words, for those folks with $3,500 rentals that were attractively ~$500 well below the breakeven rate last year - it might be time to reconsider whether buying makes more sense today!

If you can rent a similar home for less than ...

$4,056 PER MONTH

... then renting is better


Note: Other Key Assumptions for Buy vs. Rent Calculation:

3% rent growth.

20% down payment.

1.0% closing costs upfront.

6.0% selling costs backend.

Ready to buy a condo? Check out our awesome CondoCrawl event happening this weekend in San Francisco where over 50+ condo open houses will be held. Check out the featured condos here and RSVP to schedule your viewings today!

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