San Fran Real Estate Down 30%
As California goes, so goes the country.
That once held true.
In the tech world, it’s definitely still true.
California, specifically the San Francisco Bay area and surroundings, has led the way in tech riches.
The large concentration of cash and capital has created one of the greatest real estate booms in history.
Today San Francisco Bay area housing is the most expensive in the U.S.
But it’s finally starting to turn down and it portends a challenging future for the rest of the United States real estate market.
Real Estate Correction Preview
San Francisco’s housing market has been crushed in 2022.
The chart below from WolfStreet.com shows the media price of San Francisco area homes going back to 2015:
The chart shows the exact insanity we’ve been hearing so much about.
The houses were going up $100,000 per year (about a solid, but not crazy 9% annualized average) through 2020.
Then the pandemic hit and they just soared.
The median price soared from $1 million to $1.5 million in less than two years.
It was truly a crazy run, but it was too crazy to last.
And it didn’t last.
Of more than $1.5 million to $1.1 million today.
That’s a drop of more than 30% from the peak.
But more importantly, it returns the average annual increase back to the 8% annualized rate it has been increasing at since 2015.
Again, that makes the numbers look crazy over time, but it’s not an unsustainable rate of growth either.
That’s why we have a bit of a different forecast for housing in the United States.
"Radical" Real Estate Prediction
If you look at most analyses of the housing market, there are many predictions for complete catastrophe.
That’s a reasonable prediction if you discount one of the core forces making everything more expensive.
Instead there’s a mix of factors that could make the housing market one of extreme boredom and little returns for years to come.
Obviously, the bear case is strong.
Interest rate hikes have pushed mortgage rates to the highest in years. Consumers are getting squeezed. Disposable income is down. Most housing price measurements are at historic highs.
There’s a lot to not like about housing prices.
But, on the other side, the world has unleashed one of the greatest inflationary binges in history.
In the U.S. the money supply has increased by about 38% since the pandemic began.
Therefore, there will be 38% average inflation across all goods and services. Housing will be seeing a definitely higher price floor well into the future.
That leaves housing in kind of a tough spot. There’s support for prices and there’s a drag on prices.
Both sides are likely going to be proven wrong and, with the exception of red-hot markets like San Francisco, most markets will experience small corrections.
