As this is a blog and not my college thesis, I've try to be brief. Try not to harangue me too much if my sources are limited too! Part of my mission with this blog on San Francisco real estate is to keep myself informed over a wide range of real estate-related topics and then, share so you can become informed home buyers and sellers of SF and Bay Area real estate whether in Pacifica or Bernal Heights.
So, what will "normal" look like after the SF housing market fully recovers? What amount of appreciation can we expect from our homes & condos, if any? When will the San Francisco real estate market recover? Has it already begun the march? Will investors return? Does it make financial sense to own a home in San Francisco and the closer Bay Area? Will it differ if you live in Noe Valley or Vallejo?
As a member of the San Francisco Planning and Urban Research Association (SPUR), I am privy to their monthly magazine, The Urbanist. The August issue is entitled, "Housing in the Downturn: The Good, The Bad, The Next?"
In particular, I was drawn to the article: "The Bay Area Housing Market: Will Investors Ever Return?" by Chris Meany and Kim Havens of Wilson Meany Sullivan. They propose that the Bay Area's urban core and inner-ring suburbs have always had strong housing indicators like supply & demand, population and job growth, desirability, and higher incomes and that after this ugly downturn has subsided, growth will return to the strong levels of the past.
Here in the Bay Area housing market, the supply side is severely constrained by legal, political and environmental restrictions in our latte liberal San Francisco, as well as what they describe as parts of Southern Marin and the Peninsula. And we cannot forget that elusive high quality of life that drives so many from around the world to want to live here.
"Our thesis is that the housing market of the near future will look a lot like it did earlier. That is, it will look like it did before the incredible credit and speculative bubble that existed from 2003 to 2006."
So what did the local SF housing market look like pre-2006?
"The S&P/Case-Shiller Index for single-family home values shows a 6.85% compound annual growth rate in the San Francisco Metropolitan Statistical Area between 1987 and 2002. From its year of inception in 1995 to 2002, the S&P/Case-Shiller Index for condominium values in the San Francisco Metro Area shows a 10.83% growth rate."
SF Condo Values
Wow. But what about compared to the Index's Top 10 metropolitan areas? This index showed 4.65% for single family homes and 8.79% for condos. As Richard Florida has written calling San Francisco a Super Star City, geography plays a big part in our financial destiny!
Because supply and demand is such a huge driver, it is easy to see how the SF real estate market was late to suffer and will be quickest to recover. We might add in the other close-by areas such as southern Marin, the Peninsula, and in my opinion, the western parts of the East Bay like Berkeley and parts of Oakland (Piedmont, Rockridge, Temescal...) because they, too, typically have more demand than supply.
At the risk of over-quoting, let me conclude with another excerpt:
"As we try to look past the current difficult residential investment market to anticipate the characteristics of any future recovery, we believe that key determinants of past market performance will reassert themselves over time and shape the coming recovery.
We note that the "bubble" of 2003-2006 was a distortion of the market that resulted from policy changes by the federal government (reducing interest rates, increasing home ownership rates) in response to the financial shocks of 2001.
When the distortions of 2003-2006 are ignored, the key determinants of residential market performance have been supply and demand, job growth, and income. We anticipate that these same factors will influence the residential markets when a recovery commences."
