War’s Effect on Real Estate

As of late March 2026, the escalation of the conflict with Iran has fundamentally altered the trajectory of the San Francisco real estate market. What was poised to be a robust “spring recovery” fueled by sub-6% mortgage rates has instead transitioned into a period of geopolitical volatility, with mortgage rates surging to the 6.25% range in response to rising oil prices and inflation fears.

To understand the potential short-term outlook, we can look at how San Francisco’s unique market reacted during previous international crises. Unfortunately, conflicts were occurring at the same time as other events were unfolding and so it is difficult to isolate the effect of wars on the real estate market.

The Gulf War (1990-1991): Similar to the current Iran conflict, the Gulf War triggered an oil price spike and nationally, the market slowed, but San Francisco’s resilience was bolstered by its limited supply. However, the subsequent early-’90s recession saw a protracted period of flat or declining values in the 10-15% range.

The Iraq War and 9/11 (2001-2003): The Dot-com bust and the onset of the Iraq War dropped San Francisco real estate prices approximately 10% before recovering. The Federal Reserve’s aggressive interest rate cuts during this era eventually poured fuel on housing demand, leading to a massive appreciation cycle.

The Ukraine Invasion (2022): This conflict mirrored the current situation by disrupting global supply chains for construction materials like steel and aluminum. However, this also coincided with COVID-19 and work stoppages which forced the Feds to lower interest rates. The results were higher price increases in single-family homes but decreases in condos.

What can we take away from this? Perhaps that instability leads to hesitation in the market and short-term price drops, but in the long-term, prices always come roaring back.

The conflict has already exerted immediate pressure on the San Francisco housing market through several key channels. Some buyers are currently delaying major purchases like homes due to losses in the stock market, inflation uncertainties and rising interest rates.

Although rates briefly dipped below 6% in February, the escalation of the war has pushed them back toward the 6.25% range as of mid-March. Analysts suggest that without these geopolitical tensions, rates might have already stabilized in the high 5% range.

However, San Francisco’s market is uniquely buoyed by the A.I. industry. Despite global instability, many local buyers already received their IPO money or anticipating IPOs, leading to frenzied bidding wars in desirable properties in good neighborhoods.

Single-family home prices in the City saw a 16% year-over-year increase in February 2026 although with low inventory. However, the war’s inflationary pressure on energy and materials may slow activity and listings, further tighten supply and potentially sustain these high values despite lower transaction volumes.

What we do not know is how long this war will last and what assets and reserves will need to be replenished and the impact that has on our economy. What I am expecting is a bifurcated market defined by high-end resilience and middle-market stagnation.

If the war prolongs inflation, the Fed may hold rates around 6.5% through the fall. This will discourage current homeowners with 3-4% rates from selling, keeping inventory at critically low levels.

Despite lower activity, prices are unlikely to plummet. The “top tier” market (homes $3 million+) will likely see the greatest gains. Wealthy buyers often use all-cash offers to bypass mortgage volatility, viewing San Francisco real estate as a “safe harbor” during global instability. Prices for new or renovated buildings will likely rise faster due to surging material and fuel costs.

What does this mean for buyers and sellers? Tread carefully as the duration of the war is unknown. The best guess is that inflation will be higher than expected, which will cause some pain in our economy. But with inflation, prices will go higher, including the value of real estate in the long term.

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.