San Francisco’s 2-4 Unit Market: Low Inventory, Small Deals Driving Activity
The rising interest rate environment has had a significant impact on the transaction volume of 2-4 unit residential buildings in San Francisco. Many owner-occupant buyers who locked in historically low mortgage rates in prior years are opting to stay put, rather than sell and take on much higher borrowing costs. Meanwhile, strong rental income from the additional units in these properties provides an added incentive to hold. This has contributed to a stagnation in sales volume, with fewer properties hitting the market as owners choose to maximize their existing investment rather than re-enter at today’s higher financing costs.
The sub-$2M segment of the 2-4 unit market has been active, likely driven by owner-users and smaller investors seeking more affordable entry points. However, higher-priced 2-4 unit buildings have seen significantly less movement. This could be due to a combination of factors: rising interest rates making larger investments less attractive, a lack of motivated sellers at the higher end, and investors focusing on stronger cash flow opportunities rather than appreciation potential. With the median price dropping to its lowest quarterly level in over six years, it’s clear that the bulk of recent transactions have been concentrated in the lower price tiers, while higher-end properties have remained stagnant.
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