The San Francisco Rebound: When Capital, Scarcity, and AI Collide

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If you want to understand real estate markets, go to the open houses.

Earlier this year in Pacific Heights, a two-bedroom, one-bath co-op hit the market. To reach the front door you had to climb eight flights of stairs—85 steps in total, no elevator.

Fourteen offers later, the property sold for $1.62 million—more than $400,000 over the asking price.

That’s San Francisco right now.

For the past few years, much of the national housing market has been stuck in neutral. Mortgage rates remain elevated, affordability is stretched, and transaction volumes have slowed across the country. But markets never move in perfect unison. And increasingly, San Francisco is starting to look like its own economic universe again.

The AI Economy Is Rewriting the Market

A powerful mix of forces is pulling demand back into the city.

The first—and most obvious—is the explosion of artificial intelligence companies. Capital is flooding into the sector, and the epicenter of that investment remains the Bay Area. With anticipated IPOs from firms like Anthropic and continued venture funding pouring into AI startups, a new class of high-liquidity buyers is emerging.

Real estate always follows money.

And when sudden wealth enters a constrained housing market, the result is predictable: prices move fast.

Citywide rents jumped 14% year-over-year in February, the fastest increase in the country. Condo prices have risen 12%, while single-family home prices are up an astonishing 23% year-over-year, pushing the median to nearly $2 million.

To put that in perspective, the median price for existing homes nationally has increased just 0.3% over the same period.

San Francisco isn’t simply recovering—it’s diverging.

The Real Driver: Supply That Never Shows Up

But the story isn’t just demand.

The real story is supply—or more precisely, the absence of it.

In the first week of March, San Francisco had 35% fewer homes for sale than the same week last year and 50% fewer than two years ago. Much of that comes down to what I call the “golden handcuffs effect.”

Homeowners locked into 3% mortgages simply aren’t selling.

Why trade a cheap loan for a 7% one?

So inventory sits frozen while buyers pile in. That’s the recipe for bidding wars, and they’re returning quickly in the city’s most desirable neighborhoods.

Sixteen homes sold for over $5 million last month alone, a 220% increase year over year.

The Market Is Booming—But Unevenly

Like most real estate cycles, the rebound is far from uniform.

Neighborhoods tied closely to the new tech economy—places like Mission Bay, where AI offices and new residential towers dominate—are seeing prices climb again. Meanwhile, some condo-heavy areas such as SoMa are still well below their pre-pandemic highs.

Even so, the key shift is that transactions are happening again. Properties that sat stagnant for months are suddenly receiving multiple offers.

That’s always the first sign of a market turning.

When Buyers Compete, Fundamentals Matter Less

One of the most interesting dynamics emerging in San Francisco right now is how quickly buyer psychology shifts when supply tightens.

At another open house in Lower Pacific Heights, a condo listed for $1.9 million required climbing a long staircase to reach the entrance. When a prospective buyer questioned how she would carry groceries, the listing agent joked she could skip leg day at the gym.

Another property had a warning sign near the backyard steps telling visitors to use them “at your own risk.”

Yet buyers keep showing up.

As one house hunter put it:

“I’ve seen places where you couldn’t pay me $2 million to live in them… but that’s what they’re selling for.”

When markets turn competitive, functionality becomes negotiable and scarcity takes center stage.

The Lesson for Investors

As a developer and investor, I watch moments like this carefully.

They illustrate something fundamental about real estate cycles:

Demand can appear almost overnight. Supply cannot.

Housing markets move slowly on the way down but can move shockingly fast on the way up, especially in cities where regulatory constraints make building new housing difficult.

San Francisco remains one of the most supply-constrained housing markets in the United States. When capital returns—and right now AI is bringing a lot of it—prices respond almost immediately.

The eight-flight walk-up selling for $1.62 million isn’t just a quirky story.

It’s a signal.

And signals like that are often how the next cycle begins.

Daniel Kaufman is a real estate developer, investor, and writer focused on housing, urban economics, and the forces shaping America’s built environment. Through his work developing residential communities and advising on real estate investments, he studies how policy, capital, and demographic trends interact to shape housing markets. Daniel writes regularly about real estate development, market cycles, and housing supply on his blog, offering insights drawn from both the deal table and the street level of property development.