Is it a bubble? I can’t tell you exactly how many times I’ve answered that question in the past two weeks, other than to tell you I’ve answered that question a lot.
The short answer: No.
Is the SF real estate market a bubble? – The longer Answer
Yes, we’ve had an incredible return of buyer demand coupled with low inventory on the seller side. Which has resulted in some jet-fueled appreciation over the past several months. A single family home in Mission Dolores that listed for $1.250 million and sold for $1.800 million comes to mind. As do a bunch of other properties that similarly went for a phenomenal amount of money over the asking price. So, what’s going on?
First: The Pivot
The San Francisco real estate market changes quickly. While I’ve never worked in another geographic market, my peers across the country tend to agree that SF is a rather mercurial market. Much like Project Runway or fashion, one day you’re in, the next day you’re out. We had a very sharp pivot at the beginning of this year.
Thanks to that sharp pivot and all of the cash in San Francisco (1/3 of condo sales this year have been all cash, for example) prices have been on a very rapid, very sharp upward surge.
I honestly think that we are about to hit stage 3, the plateau. Even if no one needs an appraisal, there comes a point at which even San Francisco buyers decide the market is too expensive. So buyers start to back-off. Usually, often roughly at the same time, other property owners in SF neighborhoods start to realize what their home is worth. So it’s pretty typical to see an increase in inventory at around the same time buyers start to reign their bidding in. Which usually results in a market where prices plateau at their new “equilibrium” for a period of time.
What comes next after the plateau is most likely more appreciation. Given the number of buyers in the market, consumer sentiment about the economy, historically low interest rates, and a historic lack of supply in San Francisco the reasonable expectation is for prices to continue climbing. How far they climb, and at what speed, is the open question.
What are your thoughts on the SF market? Unsustainable? Headed for a correction? Just getting started? We’d love to hear your (civil) thoughts in the comments below!