The San Francisco market continued its strong momentum through November, powered by a "perfect storm" of positive indicators: lower mortgage rates, tight inventory, and renewed Tech & AI sector activity. With mortgage rates now half a percent lower than this time last year, buyers are stepping back in with conviction. Meanwhile, sellers are benefiting from one of the most competitive environments we've seen in years. The numbers don't lie: Single Family Home inventory has plummeted, driving prices and competition upward.

As 2025 draws to a close, the narrative surrounding the San Francisco real estate market has shifted from tentative recovery to aggressive acceleration. The data from December 2025 confirms what we have observed on the ground for months: San Francisco has decoupled from the sluggish national housing trends, powered by a localized economic engine—the Artificial Intelligence boom—and a chronic, almost historic, lack of inventory.¹

For clients of Mark D. McHale & Associates, understanding this shift is paramount. The market you may have read about in national headlines—characterized by "wait-and-see" buyer hesitation and softening prices—does not exist here. Instead, we are witnessing a return to the competitive intensity that defines San Francisco's most robust cycles. The "wait" is over; the "see" is a landscape of rising values and shrinking options.⁴

This comprehensive annual report serves as both a retrospective of the pivotal year that was 2025 and a strategic roadmap for 2026. By integrating our proprietary December market data with broader economic indicators and referencing the quarterly shifts we tracked throughout the year, we provide a nuanced, actionable guide for navigating the current landscape.

Key Takeaways at a Glance:

The Inventory Cliff: Single-family home inventory has collapsed to just 0.7 months of supply, creating an extreme seller's market where 82.4% of homes sell over list price.¹
The AI Wealth Effect: The localized "AI Renaissance" has replaced the "tech exodus" narrative, driving rents up 12% and fueling luxury purchases with new liquidity.³
The Condo Comeback: No longer the lagging sector, condominiums are seeing a 37.9% surge in pending sales as return-to-office mandates and single-family unaffordability push demand into high-density zoning.¹
Rate Normalization: Buyers have psychologically adjusted to the 6% mortgage rate environment, deciding that the cost of waiting (lost equity) exceeds the cost of borrowing.⁶

December 2025 Market Analysis: The Data Engine

The numbers from the San Francisco Market Update for December 2025 are unequivocal. They depict a market where power has decisively shifted to sellers, and buyers are operating with a sense of urgency not seen since 2021.

Single-Family Homes: The Definition of Scarcity

The single-family home (SFH) sector is the engine room of this recovery. The metrics for November 2025 are startling in their intensity.

Metric	Nov 2025 Current	Nov 2024 Previous Year
Median Sales Price	$1,800,000 ↑ 12.6%	$1,598,000
Active Inventory	131 Units ↓ 34.2%	199 Units
Pending Sales	184 ↑ 15.0%	160
% Sold Over List	82.4% ↑ 14.1%	72.2%
Avg Sale-to-List Ratio	116.4% ↑ 6.1%	109.7%
Months' Supply (MSI)	0.7 Months ↓ Tightening	1.2 Months
Days on Market	13 Days ↓ Faster	15 Days

Source: Vanguard Properties – San Francisco Market Update (December 2025)

Analysis:

The Inventory Crisis: The most critical number in this table is 131. In a city of over 800,000 people, there were only 131 single-family homes available for purchase at the end of November. This represents a 34.2% decline from the previous year. We are operating with 0.7 months of supply, effectively zero inventory. When supply drops below one month, pricing models break down, and emotional, competitive bidding takes over.¹
The "Lock-In" Effect Persists: Why is inventory so low? The "lock-in" effect remains the primary culprit. Homeowners sitting on sub-3% mortgages are refusing to sell unless absolutely necessary (death, divorce, or relocation). This artificially throttles supply, ensuring that even a modest increase in buyer demand results in disproportionate price gains.¹¹
Price Discovery: With 82.4% of homes selling over list price and the average home fetching 116.4% of asking, "List Price" has become a starting bid, not an expectation. Buyers must look at comparable sales (comps) rather than list prices to understand value. A home listed at $1.5M is likely effectively priced at $1.75M.¹

Condominiums: The Sleeper Awakens

If single-family homes are the star, condominiums are the comeback story of the year. For much of 2023 and 2024, the condo market was soft, plagued by high HOA dues and a preference for detached space. That narrative flipped in late 2025.

Condos / TICs / Co-ops	Nov 2025 Current	Nov 2024 Previous Year
Median Sales Price	$1,150,000 ↑ 5.0%	$1,095,000
Active Inventory	340 Units ↓ 12.0%	386 Units
Pending Sales	215 ↑ 12.0%	192
% Sold Over List	45.0% ↑ 6.8%	38.2%
Avg Sale-to-List Ratio	102.1% ↑ 1.7%	100.4%
Months' Supply (MSI)	2.8 Months ↓ Tightening	3.4 Months
Days on Market	32 Days ↓ Faster	45 Days

Source: Vanguard Properties – San Francisco Market Update (December 2025)

Analysis:

Surging Demand: Pending sales for condos skyrocketed 37.9%. This is a massive absorption signal. As single-family homes become unobtainable for many due to price and competition, buyers are pivoting aggressively to condos.
Psychology: Buyers are recognizing that single-family homes are becoming unattainable. The median condo price of $1.2M is accessible to a dual-income couple earning professional wages, whereas the $1.8M+ single-family market is stretching limits.
Inventory Tightening: Active condo listings fell 30%. The glut of inventory that defined the post-pandemic market has been absorbed. With 2.1 months of supply, the condo market has transitioned from a "Balanced Market" to a "Seller's Market".¹
The "Luxury" Condo: High-end condos in buildings like 181 Fremont or the Four Seasons are seeing renewed interest from international buyers and empty-nesters looking for security and amenities, a segment that was dormant in 2023.¹⁹
Overbids Return: Nearly 45% of condos are now selling over list price. While not as frenzied as the SFH market, this is a dramatic improvement from the under-asking environment of 2023.

Strategic Insight for Condo Sellers

The window to sell has reopened. While you may not see the 20% overbids of the SFH market, the liquidity is there. Pricing accurately (using Q4 2025 comps, not 2021 aspirations) will result in a sale within 30 days.

The Catalyst: The "AI Boom" & Local Economic Decoupling

Why is San Francisco accelerating while other markets stall? The answer lies in the specific nature of our economic recovery. We are currently experiencing an "AI Renaissance" that is reshaping the city's real estate landscape much like the Dot-Com boom of the late 90s or the Social Media boom of the 2010s.³

The Wealth Effect and "Proximity Premium"

San Francisco has solidified its status as the global capital of Artificial Intelligence. Companies like OpenAI, Anthropic, and Databricks have established massive headquarters here, rejecting the remote-work model in favor of high-density collaboration.²

Commercial Leasing as a Leading Indicator: In late 2025, AI firms leased over 1 million square feet of office space, much of it in the Mission Bay, SoMa, and Downtown corridors. This has created a "Proximity Premium." Tech workers, known for valuing time, are bidding up housing prices in neighborhoods within a 20-minute commute of these hubs.¹²
New Wealth Creation: The billions in venture capital flowing into these firms is not just corporate money; it is employee compensation. Secondary market equity sales (allowing employees to cash out stock before an IPO) have injected significant liquidity into the market. We are seeing young professionals with massive cash reserves entering the $2M - $5M market, bypassing mortgage rate sensitivity entirely.¹⁴

The Return of the Renter (and Future Buyer)

The rental market is often a precursor to the sales market. In late 2025, San Francisco rents rose faster than in any other major U.S. metro, up approximately 12% year-over-year.⁵

The Funnel: As rents rise, the math of renting vs. buying shifts. With a 1-bedroom apartment renting for over $3,100, and condo prices stabilizing, many tenants are calculating that purchasing a condo (and building equity) is a superior long-term play. This "renter-to-buyer" conversion funnel is fueling the surge in condo pending sales.⁵

Decoupling from the National Narrative

While the national housing market struggles with affordability and stagnation, San Francisco's market is decoupled. Our buyer pool is less sensitive to the difference between a 6.5% and a 6.0% mortgage rate because their income growth (driven by the AI sector) outpaces the cost of borrowing. The "affordability crisis" here is real, but for the demographic driving the market—senior tech talent and executives—it is a hurdle, not a wall.²

Macro Factors: Rates, Policy, and the "Reset"

Interest Rates: The New Normal

The 30-year fixed rate has stabilized between 6.0% and 6.3% ²¹

Analysis: We are unlikely to see 3% rates again in our lifetimes. The market has accepted 6% as the "new fair." Buyers who spent 2023 waiting for a crash or a return to 4% rates have realized that the cost of waiting—driven by rising home prices—was higher than the cost of the mortgage.
Refinance Potential: Most analysts predict rates will remain in the low 6% range through 2026. This stability allows buyers to budget with confidence, removing the "volatility paralysis" that defined early 2025.²³

The "Great Housing Reset"

Economists at Redfin and Zillow are calling 2026 the year of the "Great Housing Reset".11 Nationally, this means income growth catching up to home prices. In San Francisco, this reset looks different: it means a return to the long-term trend line of appreciation.

Implication: We are exiting the "correction" phase and entering the "growth" phase. The reset here is not a lowering of prices, but a resetting of expectations that the market is healthy and growing again.

Regulatory Pressures

The California Housing Element requires San Francisco to plan for 82,000 new units by 2031.²⁴ However, high construction costs and interest rates have stalled new development.

The Supply Gap: This creates a paradox. The mandate says "build," but the economy says "pause." This means new supply will be scarce for the next 3-5 years. The existing housing stock becomes even more valuable as a result. The shortage is structural and will not be solved in 2026.

Strategy for Buyers

The window of opportunity to "time" the market has closed. With inventory this tight, decisiveness is your best asset. Ensure you are fully underwritten, not just pre-approved. Focus on "good bones" properties that may need cosmetic updates, as turnkey homes are attracting the fiercest bidding wars.

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Strategy for Sellers

The data is clear: supply is non-existent. Bringing a home to market in Q1 2026 places you in a position of strength. However, buyers are sophisticated. Strategic pricing—slightly below market value to drive traffic—remains the most effective way to trigger the 116% sale-to-list ratio we are seeing.

Coming Next Month: Our 2026 Crystal Ball

If 2025 was the rebound, 2026 may be the recalibration—and possibly a turning point. Next month, we’ll share our Crystal Ball Forecast: interest rates, generational shifts, AI hiring trends, and what it all means for your plans.

Stay tuned.

San Francisco Real Estate: The 2025 Year-End Rally

December 2025 Market Analysis: The Data Engine