2025 Market Review

As 2025 draws to a close, the real estate market has experienced yet another interesting year. The recurring question at this time is: Where is the market headed next?

The latest upturn ended in 2022, kicking off a downward trend that was exacerbated in 2023 by rising inflation and interest rates, resulting in slower sales. We had the presidential and mayoral elections in 2024, with President Donald Trump and SF Mayor Daniel Lurie taking office in 2025 to lead the country and our City.

Below is a brief overview of San Francisco’s real estate scene in 2025.

The beginning of the year remained sluggish due to lingering holiday effects from 2024, and this slow pace continued into the early months. However, several minor drops in mortgage rates – between .25% and .5% – sparked increased sales. The surge in A.I. also brought eager buyers who quickly snapped up luxury properties. Sellers found two realities: Well-maintained homes in appealing locations at competitive prices still attracted strong offers, while properties with flaws tended to linger on the market and eventually sold at discounted rates.

Preliminary data indicates that in San Francisco as a whole, the number of sales will rise about 8%, with prices increasing approximately 1.9% over 2024. I plan to give a deeper analysis of Richmond and Sunset districts next month.

What does this signal? Has the downturn ended? Has the market hit its bottom and begun an upward trajectory?

Regular readers know our local real estate cycle bottomed out in 2009, followed by years of robust recovery until 2022, including major appreciation between 2012-2015. The subsequent years saw moderate price growth. The onset of the COVID-19 pandemic in 2020 caused a temporary freeze, then sales rebounded as people reassessed their long-term housing needs and capitalized on historically low interest rates. Demand soared in lower-density neighborhoods like the Richmond and Sunset districts, driving price increases higher than elsewhere in the City.

The market downturn started in 2022 and persisted through 2023, with high inflation prompting the Federal Reserve to raise interest rates by a total of 5.25%. Mortgage rates climbed in step with each hike. This year, the Fed cut rates three times, dropping the Fed Funds rate to 4%.

However, these are short-term rates; long-term mortgage rates tend to follow the 10-year Treasury Yields, and the Fed Funds rate is just one factor influencing them. Other elements, including the supply and demand for funds and broader market trends, also play a role. In 2025, 30-year mortgage rates fluctuated between 6% and 6.75%, about .5% to .75% lower than last year.

What lies ahead for 2026? I believe the worst is behind us. Market cycles typically run seven years up, followed by three to four years down or flat before recovering. Right now, we seem to be at the cycle’s three-to-four-year mark, and I expect prices to remain steady or increase slightly in 2026.

There’s optimism in San Francisco, as Mayor Lurie’s initiatives – such as reducing crime, cleaning up the City, attracting new businesses downtown and boosting tourism and conventions – are making a positive impact. After a dip in the first quarter, the stock market has rebounded and reached record highs.

Despite ongoing challenges, San Francisco remains a highly desirable place to live, and there are always buyers in the market. Sellers can find success by pricing properties appropriately. Buyers should proceed cautiously, as significant price gains may not return for a couple more years, but opportunities exist. For investors, now could be an ideal time to purchase properties at prices unavailable in recent years.

I’ve appreciated connecting and exchanging emails with many of you over the past year. Your questions and insights about the Richmond and Sunset markets were valuable. Wishing you a safe holiday season and a prosperous 2026!

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email johnlee@isellsf.com.