Understanding the Current Economic Situation: Debunking the Real Estate Bubble Myth
6% vs 53%
I am not an economist. I am a San Francisco Real Estate Agent with 100s of sales under my belt. I have my own sense of the local San Francisco real estate market based on my life in the trenches of buying and selling homes for my clients. But I do follow the leading real estate economists and pay attention to both macro and micro factors that affect SF housing conditions.
Lately, there’s been a lot of talk about whether or not we’re in a real estate bubble. My stance is that all markets are cyclical and this boom has been building for 3+ years. If you think the past is any indicator of the future (and that is debatable), we’re bound for a correction or at least a plateau. However, our currently robust SF real estate market could stick around for some time. And when it does correct, it may be mild, at least in the more popular neighborhoods. In other words, yes, all markets are cyclical and yes, you should consider this in your plans* but this does not mean we have another Great Recession downturn in store. At least, we probably don’t here in San Francisco (and close surrounding areas with similar dynamics). Apparently, the economic hotshots concur!
According to Jed Kolko, Trulia’s Chief Economist, the San Francisco metro real estate market (San Francisco, Marin and San Mateo Counties) was 53% overvalued at the pre-Recession peak vs today’s figures of only 6% overvaluation.
“Kolko’s data suggests that current home prices in the San Francisco metro area (which includes Marin and San Mateo counties) are not in fact overvalued compared to the historical relationship between median income and medium home price.” – Courtesy of SPUR.
What this means is that SF homes are actually not overpriced when you consider the relationship of median income to median home price. Shocking, right?
Affordability Crisis, Not a Real Estate Bubble
San Francisco is the most expensive metro area in the United States and it looks like it may remain so indefinitely. Why? While it’s easier to blame supposedly greedy landlords or young tech workers, they did not cause our housing affordability crisis. Geography and NIMBYism did. There, I said it.
“Tim Cornwell of the Concord Group explained the wide variety of factors underlying the crisis. San Francisco is limited by both geography and extensive regulation. There’s very little room to build new units, and securing the rights to begin construction is extremely difficult and expensive — an irony common to many of our nation’s most expensive cities. In spite of the challenges associated with housing production, San Francisco is home to more jobs than ever before, and the job growth shows no signs of slowing — posing a challenge to the city’s long-standing cap on annual office growth. It’s no secret Millennials are willing to sacrifice just about anything to live in a superstar city, but Boomers, many of whom cashed in on valuable homes in the suburbs, are moving in to San Francisco at an even faster rate.” – Courtesy of SPUR.
It’s ALL about Supply and Demand
In summary, San Francisco has an affordability crisis. You’d have to be living under a rock not to notice. Personally, I want our City to be a place where diverse peoples can thrive (lower, middle and upper classes, creatives, techies, service providers, laborers and so forth). To get there, we need to acknowledge that the train has left the station and do our best to manage it’s trajectory through seriously improved public transit (throughout the Bay Area 24/7), easier small, medium and large business development and MORE FREAKING HOUSING. Don’t be deceived by all of those cranes you see around town. We’re playing catch up from decades of stalled housing development.
* That’s Great Info But I’m a Home Buyer or Seller. What Does It Mean For Me?
What it means to you, Ms/Mr Home Buyer or Home Seller, is that this boom market will slow at some point but prices are likely to hold much longer. As a Buyer, buy as soon as you can to take advantage of low mortgage interest rates as these will go up quicker than prices will go down. As a Seller, the timing of your listing should depend on your individual situation. How long have you owned your home? Where are you going? Are you going to buy a home here or somewhere else? If you don’t sell now, will you hold long term?
For many, there has been such amazing appreciation that it makes sense to Pass Go, Collect $200 and make your next investment. But it really depends. Call me so we can discuss the particulars.
See ya out there,