These are the S.F. neighborhoods where home prices haven’t rebounded from pandemic lows

However, even though most downtown San Francisco neighborhoods saw home values grow over the past year and a half, their recovery was slow compared to areas farther from the city center. And nearly all neighborhoods in San Francisco lagged the average increase in home values across the wider San Francisco metropolitan region, which Zillow defines as the Bay Area counties of Alameda, Contra Costa, San Francisco, San Mateo and Marin.

And even though buyer demand remains high and inventory is low in the Bay Area, the housing market is showing signs of “normalizing” amid this year’s surge in mortgage interest rates — which could stall or even reverse San Francisco’s recovery, analysts say.

The new data shows yet again how the pandemic exodus from major city centers sent home values and rents plummeting there — a phenomenon that Stanford University economists Arjun Ramani and Nicholas Bloom in a study in May 2021 dubbed the “doughnut effect.” The pandemic “dramatically tilted the cost-benefit calculus for living in small homes close to city centers, versus larger homes further out,” said Jeff Tucker, senior economist for Zillow, in an email.

Nowhere were the effects as dramatic as in San Francisco, Tucker said.

“In the Bay Area, America’s most expensive major metro area, the reconsideration of these tradeoffs has yielded the most dramatic shifts in local rent and price dynamics that we’ve seen anywhere in the country,” he said.

A number of factors could explain why San Francisco represents the extreme, Tucker said — among them the city’s already-sky-high home prices, rents and incomes; its very high number of remote-friendly employers; and relatively tight public health restrictions throughout much of the pandemic.

Home values across San Francisco declined by an average 0.58% from January 2020 to April 2021, according to Zillow data — compared with an average increase of 9.4% for the five-county metro area.

But most neighborhoods in San Francisco have experienced a turnaround in the past year and a half.

Most notably, Little Hollywood, sandwiched between Candlestick Point State Recreation Area and Visitacion Valley in southeast San Francisco, saw home values soar 27% from 2021 to 2022. By contrast, from 2020 to 2021, home values grew only 6.8%. Over the entire pandemic, from 2020 to 2022, home values grew 25%.

The Tenderloin saw the biggest negative impact on home values during both time periods, and was the only neighborhood still recording a decline in the 2021-22 period, at -0.3%. Still, that was an improvement over 2020-21, when home values in the neighborhood dropped 11.8%. The decrease over the entire 2020-22 period was 9.1%.

Home values in the North Waterfront area next to the Embarcadero grew 2.4% from 2021 to 2022, reversing a drop of 2.8% from 2020 to 2021. But over the entire pandemic period, the neighborhood was in negative territory with a decline of 1.3%.

Still, many areas closer to downtown have been staging a comeback in the past year and a half. Mission Bay recorded a 7.9% decrease in home values from 2020 to 2021, but from 2021 to 2022, values rose 5.6%. In Nob Hill, home values dropped 6% from 2020 to 2021 but turned around to 6% growth from 2021 to 2022.

For all of San Francisco, the average increase in home values for 2021-22 was 16.2%, compared with 26% for the five-county metro area, according to Zillow data.

Annual price growth nationally and in most places locally was higher from early 2021 to early 2022 compared with the previous year, Tucker said, and it reached its all-time record high in April before starting to descend in recent weeks.

The main driver, he said, was more people competing to buy homes.

“Higher level of housing demand is the first explanation for higher baseline of neighborhood price growth in 2021-2022,” Tucker said.

From late 2021 to early 2022 in San Francisco, most adults were vaccinated and offices began reopening, so there was “at least a partial rollback in the ‘doughnut effect’ dispersal of demand away from urban core neighborhoods,” he said.

“Activity in the city revived, and that translated to a return of demand to purchase homes in the urban core,” he said.

Forest Hill, just west of Twin Peaks, saw considerable home value growth, rising 26% from 2021 to 2022. From 2020 to 2021, the neighborhood saw just a 5.2% increase in home values.

Cow Hollow and the Marina had the biggest decline in home values among all San Francisco neighborhoods from 2020 to 2021, -9.8% and -9.2%, respectively, but both have seen substantial growth since. Cow Hollow’s home values increased 12.4% from 2021 to 2022, putting it at 2.7% growth for the entire 2020-22 period, and home values in the Marina jumped 18.3% from 2021 to 2022, resulting in 7.3% growth for the 2020-22 period.

The Presidio saw the biggest jump in growth during the past year and a half compared with the entirety of the pandemic. From 2021 to 2022, they went up 15.5%.

But these gains may slow down as mortgage rates continue to rise, Tucker said.

It is “very likely that prices will at the very least plateau in San Francisco, and a modest decline is not out of the question,” he said, noting that when interest rates last rose in 2018-19, home prices dipped in San Francisco and San Jose.

“That suggests that housing demand is particularly sensitive to interest rates in the Bay Area,” Tucker said. “Mortgage interest rates and home prices are substantially higher now than in late 2018, so I would not be surprised by another temporary drop in home values in San Francisco.”

Kellie Hwang is a San Francisco Chronicle staff writer. Email: Twitter: @KellieHwang


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