San Francisco homebuyers have officially lost their minds

It was late January when Bill Law realized something had shifted in San Francisco's real estate market. That month, the longtime tech worker and his wife submitted an offer on a $1.3 million home in the Sunset District, a west-side neighborhood that boasts good schools and easy access to both the ocean and Golden Gate Park. Hoping to stand out from the house-hunting scrum, the couple offered $300,000 above the asking price. They didn't come close. The winning bid of $1.86 million easily eclipsed their offer.

"I definitely feel the frustration in the real estate market," Law tells me. "Since January, it's just — it took off like a rocket."

Half a million dollars may sound like a stunning sum for a bidding war — unless you've paid any attention to San Francisco's housing market over the past six months. In a city long on AI and chronically short on housing, some homes now trade for millions of dollars above their asking prices. Once-underrated neighborhoods like the Outer Sunset and Outer Parkside now provide fog-soaked backdrops for truly unhinged pricing contests. No major city has seen home values rise faster over the past year, helping the San Francisco metro reclaim its title as the most expensive housing market in the country.

The City by the Bay has seen many a boom-and-bust cycle, but seasoned San Franciscans will tell you that this one feels different. Recency bias? Maybe. The current AI-fueled bonanza, though, is notable for both its concentration of extreme wealth and the speed with which it's minting new fortunes. With a wave of IPOs looming, including OpenAI, SpaceX, and Anthropic, overnight millionaires and billionaires are poised to deliver more shocks in the coming months.

It's a head-spinning turnaround from the last time San Francisco real estate drew national headlines. In the depths of the housing slowdown in 2022 and 2023, Bay Area home prices were caught in the dreaded "doom loop" as newly mobile white-collar workers fled to home offices in cheaper cities like Austin or Denver. Census Bureau data shows the city's population shrank by more than 60,000 people.

It's tempting to write off San Francisco's comeback as an AI-fueled anomaly, an extreme case divorced from most Americans' reality. The city may stand alone in many respects, but the experience of buyers and sellers there also offers a neat encapsulation of the forces shaping the whole of America's real estate market: the K-shaped economy, employers' return to the office push, homebuilding hurdles, and, of course, the AI-bubble-or-maybe-not-a-bubble. San Francisco's "boom loop" is just getting started — and a version may be coming to a city near you.

Until recently, the six-bedroom home at 2626 Larkin Street served as a reminder of San Francisco's sinking fortunes. The contemporary Mediterranean Revival building, with its sweeping views of the Bay, 1,000-bottle wine cellar, and prime location atop Russian Hill, represented the height of luxury. In January 2020, it sold for a whopping $20 million. Just a few years later, though, in late 2023, it traded again for a mere $10 million — a 50% discount. The eye-popping collapse spoke to San Francisco's broader headwinds: The city's typical home value plummeted by more than 17% from its 2022 peak to its 2024 trough, Zillow data shows.

Today, the house is a symbol of the city's rebound. It sold for $24 million in April — recouping all of its pre-COVID value and then some. The Larkin Street spot is hardly an outlier. "I've never seen a market like this," says Monica Pauli, an agent and 25-year veteran of San Francisco's real estate scene. She grasped the full extent of the changes in September, when one of her listings, a four-bedroom home in Asbury Heights, quickly sold for $1 million above its $4 million asking price. Pauli began warning buyers to get under contract before the flood of AI money rocked the market further: "I told them, you have to buy before 2026."

The AI-driven frenzy is the latest and most dramatic twist in a six-year housing odyssey for San Francisco. The downtown area was hit hard at the outset of 2020, but an initial dip in the city's home prices soon turned into a boom as buyers pounced on rock-bottom mortgage rates and scrambled for more home-office space. "Everybody had a record year in 2021," says Paul Hwang, an agent who specializes in the South Beach neighborhood. Then interest rates spiked, tech companies shed workers, and residents' march toward cheaper pastures intensified — from 2020 through 2022, the metro's population shrank by more than 3%. San Francisco home prices followed suit. As recently as spring 2025, things still seemed shaky: tariffs, high borrowing rates, and general economic anxiety spoiled hopes of a pickup in buyer demand. As the sun was setting on last year's summer selling season, however, something odd happened: San Francisco prices started climbing — quickly.

While the pandemic and rise of remote work loosened the city's grasp on tech talent — "people said that the Bay Area was dead," Daryl Fairweather, the chief economist at Redfin, tells me — that slippage has proven to be temporary. The city is now the undisputed heart of the AI revolution, home not only to household names like OpenAI and Anthropic, but also "a lot of companies you've never heard of that are worth $100 billion or something," says Mike Simonsen, a longtime San Francisco resident and the chief economist for the real estate brokerage Compass International Holdings. "I have friends in their 30s who are suddenly billionaires."

This crop of companies is luring workers to the Bay with the promise of multimillion-dollar bonuses, fat equity packages, and lavish salaries. An analysis of migration data by John Burns Research and Consulting found that San Francisco recently notched its first month of positive net domestic in-migration — more households moving in from other parts of the country than moving out — since at least 2018. Austin, a darling of the remote-work era, emerged as a popular destination for Bay Area expats in 2020. Over the past year, though, more households moved from Austin to San Francisco than the reverse.

The renewed interest is butting up against the city's multi-decade struggle to produce more homes. Even in San Francisco's down years, the inventory of coveted single-family homes was tight: in the spring of 2023, Compass data shows, fewer than 400 single-family homes were available for sale in the city. Today, there are only 250 or so. The city simply isn't building new supply. Meanwhile, well-compensated tech workers are using those bonuses and increasingly valuable stock to snag their slice of the city. My colleague Ben Bergman recently reported on a couple of Bay Area home listings for which OpenAI and Anthropic stock will suffice as payment. Hwang, the South Beach agent, expects the future IPO windfalls to further juice the housing market.

"When they work so hard, 9 A.M to 9 P.M., six days a week, they're going to feel entitled to go buy the Ferrari," Hwang said. "And the Ferrari is literally the house in Noe Valley or the penthouse in South Beach."

The San Francisco metro already has the highest price growth of any major metro in the country, with prices up nearly 11% year over year, per Redfin data. Within the San Francisco city limits, prices are up a stunning 15% from a year ago (no other major city comes close to hitting double digits). That growth is mostly coming from the top end of the market, Fairweather tells me. Prices are up 13.4% since 2022 in "luxury" neighborhoods, or ZIP codes where the typical home price exceeds $3 million. With the number of luxury buyers dramatically outweighing available inventory, competition is fierce even for fixer-uppers.

"People are willing to do a lot of work," says Victoria Stewart Davis, an agent who's worked across San Francisco for more than two decades. "They're willing to buy something for $8.2 million and spend another $8 million renovating it."

Agents and economists note that this frenzy has yet to really spill over to the entry-level part of the market. For example, prices are actually down 4% in ZIP codes with homes in the half-million-dollar range.

"I think the AI part is important in explaining the divergence between the luxury and the non-luxury part of the market," Fairweather tells me. The richest buyers can afford to duke it out in bidding wars, but the rest are staring down the same factors that have forced many potential buyers across the US to pump the brakes.

At the top end of the market, the madness is often by design. Sellers' agents are pricing homes well below market value "to get buyers through the door," Pauli says. "Then the market will speak." That could mean a final sale that's a million dollars over the asking price, or it could mean the eventual buyer pays double the listed amount. Pauli points to a six-bedroom home in the Cow Hollow neighborhood that recently sold for $15 million — nearly twice its $7.95 million asking price: "The pricing strategy, it worked."

Sales from just a couple of months ago, or "comps," which agents typically use to estimate the market value of current listings in a given area, have been rendered meaningless. Michael Williams, an agent with the brokerage TurboHome, says he now focuses on calling agents with pending sales to get up-to-the-minute insight on what homes are going for. Like any agent in San Francisco these days, he can rattle off examples of bidding wars that broke his brain: one that sticks with him is a house in Bernal Heights for which one of his clients was in the running. The winning offer came in at $2 million — $400,000 higher than the second-place bid.

"We are seeing, I think, a little bit of a disconnect from reality," Williams tells me.

At a certain point, the numbers cease being anchored to anything other than a desire to avoid losing.

"Many people with really deep pockets, it really doesn't make a difference to go $5 million, $10 million above asking, especially if they missed out on a home or two," says Alan Mark, a longtime Bay Area real estate consultant. "That'll really get people going. They got emotionally involved, and they lost. They go in a third time, and there's no way they're going to lose."

The numbers don't bode well for a calmer San Francisco market anytime soon. A city with a few hundred single-family homes up for grabs at any given moment is hardly primed to accommodate thousands of newly flush tech workers. Sure, not all of those lottery winners will rush to sink their money into the housing market. But the ones that do will almost certainly be jostling for the exact kinds of homes that are already drawing the stiffest competition: move-in-ready, standalone places that can accommodate growing families and offer attractive commutes for 996ers.

Simonsen, the Compass chief economist, moved to San Francisco in January 1999, when the city was in the throes of the dot-com boom. "This in many ways feels comparable," he tells me. One difference, he says, is that the current gold rush feels more concentrated among a smaller number of companies that are doing "really remarkable things."

That concentration, and the unevenness of San Francisco's real estate comeback — super hot on the luxury end, lukewarm in the "affordable" segment — speaks to the broader forces at play nationwide. The K-shaped economy means lower earners are getting hammered by inflation, while high earners are weathering it just fine as their investments swell. Pandemic-era migration patterns have broken down as homeowners stay put, companies pull back on hiring, and white-collar workers heed the call back to the office. The AI boom is minting lots of new winners while prompting layoffs elsewhere.

"At a national level, it's reflective of how the AI economy is not making everybody equally rich," Fairweather tells me.

When I spoke to longtime San Franciscans, they expressed concerns about the destabilizing effects of rapid price run-ups. "Nobody wants to see rents or prices shoot through the moon," Mark, the real estate consultant, tells me. Even the ones who can afford it are rethinking how far their money will go. Law, the tech worker who lost out on that $1.86 million home in the Sunset District, ended up closing on a three-bedroom home in that neighborhood in March after weeks of diligent searching: "Whatever came out that met our criteria, we went and looked at it," Law tells me. "It was just, like, hardly any homes." At open houses in popular neighborhoods, he and other hopeful buyers found themselves "literally shoulder to shoulder, like you're at Disneyland on Thanksgiving or Christmas."

The winning home came with none of that mess. Law and his agent put in an offer before the seller ever hosted an open house, hoping to secure the place before it got more interest. The seller was on a tight timeline, and they worked out a deal. To save money in other ways, Law enlisted the services of TurboHome, which charged him a flat fee of $20,000 rather than the typical agent's fee of 2%-3% of the sale price — tens of thousands of dollars more in this instance. Law asked that I not disclose the final price, but noted he ended up shelling out $1,200 per square foot — well above the $900 per square foot he bid on that first home.

"It was definitely an eye-opening experience," Law says.

Today's bidding wars may soon seem like bargains. There will be plenty more handwringing in the coming months over San Francisco's skyrocketing prices and growing disparities. For now, though, the real estate practitioners I spoke with were mostly relieved that the conversation has shifted away from the "doom loop." The pervasive feeling is that naysayers were too quick to sound the death knell for San Francisco, too hasty in writing off its industry and natural beauty.

"I think we've been undervalued for a long time," Pauli tells me. "It's really nice to see our city bounce back."

James Rodriguez is a correspondent on Business Insider's Discourse team.

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