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Myth: San Francisco condos yield higher return than East Bay’s

Myth: San Francisco condos yield higher return than East Bay’s

Yes, it’s true. The Bay Area’s housing market is extremely competitive. While all of the news outlets are talking about how unaffordable it is with an emphasis on the severity of the current homeless crisis, it’s common for homebuyers to perceive San Francisco city as a market where properties appreciate the fastest. Is this really true? Let’s think again.

A friend referred a Real Estate buyer to us from Singapore. She is interested in purchasing a condo in the SF Bay Area. Inevitably, this question came up, “Do condos in the city appreciate faster than the East Bay?” I thought that she raised a legitimate question.

Let’s dig into the numbers and try to find an answer. I conducted this quick study with San Francisco and two East Bay cities,– Emeryville and Oakland.

San Francisco Condos

Photo by Quintin Gellar from Pexels

Everybody wants to live in the city–after all, it is diverse and filled with things to do. According to Zillow’s data, the median home value in June 2019 was $1,202,100, compared to the median home value of $938,800 from 5 years ago. This yields a 28% gain compared to the lowest point during the previous real estate crash–, condos gained 90% from July 2011 at $632,700 as the median home value.

Oakland

The Bond – KTGY

Now, let’s look at the biggest East Bay city of Oakland. In June 2019, Zillow posted Oakland’s median home value for condos as $607,400, half of the city’s counterpart. That’s very grim to start with. Let’s roll back the same 5 years to June 2014, the median value was $379,500, which means that Oakland condos appreciated a whopping 60%! How about we compare that with the lowest point in February 2012? Back then, Oakland had a jaw-dropping median value of $242,800. This means that Oakland condo owners who purchased a unit at the median price that year are seeing a 150% gain in home value today!

Emeryville

Oakland has changed a lot over the years. With the birth of upscale restaurants and trendy new businesses, the city of Oakland has been completely revived and gentrified. Despite Oakland’s undeniable boom in recent years, it’s bad reputation remains. If it’s is not your cup of tea, let’s take a look at a lesser-known East Bay city. Emeryville, just north of North Oakland, consists of a substantial condominium housing stock and is often referred to be the East Bay’s tech hub. In June 2019, Emeryville’s condo median value for condos was $556,690 compared to $338,600 just 5 years ago. Emeryville condos have appreciated 43%! Although this is not as impressive as Oakland’s 60% appreciation, it still beats San Francisco’s 28% with ease. Being geographically close to Oakland, Emeryville had its lowest value in the same month as Oakland, February 2012. Back then, median home values were slightly higher than Oakland, at $256,100. If you take June 2019’s $556,690 and divide it by $256,100, it’s easy to see it appreciated a nice 117%.

Conclusion

By now, it’s apparent that condos in San Francisco simply do not appreciate as fast as commonly believed, despite all of the hype and IPOs. Before we dismiss the investment potential of condos in the city, let’s compare one more scenario – real estate market crash.

San Francisco’s median value for condos previously peaked at $764,900 in August 2007. It doesn’t take much redbull to notice between its peak and trough, San Francisco condos only lost a narrow 17%. The same can’t be said about Oakland and Emeryville, which lost 45% and 40% respectively.

The take-away of this quick exercise is that the value of condominiums in San Francisco had a higher resistance to market crash, but simultaneously it didn’t gain as much when the market bounced back. Here is my answer to my client’s question, “If less volatility is what you are looking for, then condos in San Francisco would be a good choice. If you are feeling adventurous with hope for a potentially higher return, then Emeryville and Oakland condos may be just what you are looking for.”

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Lex Shan

Lex is a real estate broker, real estate developer, entrepreneur and technologist. He has started an architectural design firm, real estate development private equity fund and California's largest real estate 3D marketing company.

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