Most homeowners who bought their homes at the peak of the frothy real estate market in 2005 or 2006 probably have at least a little bit of regret about that purchase. For many of these buyers, those investments eight-plus years ago are at best breakeven today.
For investors in U.S. cities like San Francisco, though, that's not the case.
A few specific examples point to the trend
For example, this five-bedroom, three-bath home is currently for sale for $999,000 in the Potrero Hills area. The home was last on the market in June 2005, when it sold for $752,000. Assuming the home sells for the current asking price, that calculates out to nearly a 33% return.
Or, consider this three-bedroom, three-bath home in Midtown Terrace. The 1,934-square-foot home sold for $801,000 in 2004. Today's $998,000 asking price would represent a 24% return over the 10 years since its last sale.
Let's not forget at this point that the past 10 years includes the greatest real estate collapse in a generation. To see 25%-33% returns speaks to the impressive resiliency of the San Francisco market.
Since the bottom of the real estate collapse, the San Fransisco market has bounced back at a much higher rate than the broader real estate market.
Over the past 12 months alone, the Case-Shiller home price index for San Francisco has nearly doubled the Composite 20, growing by 6.65% versus 3.48%, respectively.
Broader economic strength supporting the real estate market
Since the crisis, the San Francisco economy has recovered quite well. The unemployment rate has been lower than national averages since 2012.
San Francisco has benefited from its place at the epicenter of the tech world. From Silicon Valley to Mission Bay, billions of dollars are invested in San Francisco companies that create high-paying jobs, bring high-skilled workers to the city, and support one of the strongest local U.S. economies.
That strength extends beyond Internet start-ups, biotech, and cutting-edge engineering jobs -- San Francisco is also a major financial center sitting halfway between Tokyo and London. It is a major West Coast port thanks to its natural harbor, and thanks to nearby Stanford University, the area is also a worldwide leader in research and development across numerous industries, medicine being of particular note.
What does this mean for homeowners (and potential homebuyers)?
For current homeowners in San Francisco, the future remains bright. The San Francisco economy shows no signs of coming weakness; it's likely that the area will continue growing unabated. With that growth will come ever-increasing demand for housing and continued strength in the market.
Don't forget, the real estate boom and bust from 2006 through the financial crisis was fueled by speculation. In the San Francisco market today, the area's growth is being fueled by fundamentals.
So if you're interested in the market, you should consider acting sooner rather than later. It's very likely that $1 million won't buy you quite as much home tomorrow as it does today.
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