San Francisco

Before getting into how much the San Francisco housing market is slowing down and what that might mean, if anything, for other U.S. housing markets, it’s first important to understand just how much it heated up.

In the past four years, the median sales price for a home in San Francisco rose by 66 percent. That median sales price at the end of May, the latest month for which sales data were available, was $1.38 million.

In other words, if you bought a house in May of 2012 for $835,000 – then around the median price – it would have been worth $545,000 this past May. That’s a half-million dollars of net worth added in 48 months for owning a home. Not a bad investment.

But it would appear the brakes have been slammed on the price appreciation. In April and May of this year, prices rose only 2 percent from the same period last year. That figure was 23 percent for the same time period the year before that, obviously quite a difference.

So what does San Fran have to do with the rest of the country?

Well, there are some things that happened during the real estate bubble and its subsequent burst, as well as during the recovery that can give us some possible insight into markets across the country. As you know, all real estate is local – there really is no true “national” housing market – but it’s worth looking at history and trends that might let us predict where things are heading in multiple markets.

Heading into what became a mortgage crisis, there were certain cities that got “hot” the soonest, then went bust the soonest, fell the furthest, and/or came back the soonest once the recovery began. Sure, we see news stories about $1 homes in Detroit or the blight in Cleveland, but those are mostly markets that aren’t recovering as quickly because of population decline and job losses.

And those cities, while recovering the slowest, did not fall the soonest or the hardest when the clock struck midnight on the real estate bubble a decade ago.

Those were instead places like Phoenix, Las Vegas, Miami, San Jose, Calif., and, yep, San Francisco. The bubble burst in “sand and sun” markets much earlier than elsewhere. It took quite some time before the entire country was in the biggest housing downturn ever.

In fact, by the time things were hitting their price troughs in some markets, prices were already creeping back up in some areas of those markets. Those markets were the first where home values returned to their peak values. Those were the first to fall, the first to get up and the first to take off fast again.

And, just like when it all came crashing down, other markets are following.

So when we see the booming San Francisco market finally slowing down its crazy price-growth rate, see it actually drop off of Zillow’s top 20 “hottest” market list, it’s logical to expect other markets to follow. True, some markets never saw crazy 23-percent gains in a year the way San Fran did, but many during the recovery have enjoyed rapid rises. And now that the volatility in a formerly hot market like San Francisco is stabilizing a bit, we can expect price appreciation to cool off in other markets, too. 

I can’t really explain why, economic fundamentals-wise. I just know that the ups and downs, peaks and valleys of certain markets fell into definitive price trends faster than most other markets. That happened both on the way up the first time, on the way down, and on the way back up again.

It’s actually probably good for the people of San Francisco that prices seem to be cooling a bit. According to some data, only about 13 percent of the people there can afford a median sales price home. On different scales across the country, it’s not bad news either.

Sure, homeowners who enjoy double-digit equity gains each year help strengthen the overall economy. 

But so do buyers for whom housing becomes, and/or remains affordable.

So thanks, San Fran.