San Francisco Housing Market Expected to Cool Off in 2017

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San Francisco Housing Market Expected to Cool Off in 2017

October 03, 2016

 There’s good news in store for San Francisco residents who have become all too used to rapidly rising rents and home prices. The last 12 months have seen rents and home prices in the San Francisco Bay area cool down considerably, from the high of 15% to 17% to 5% to 6%. That is impressive, and experts predict the cooling off period to last at least for the next three years.

This is certainly good news for you if you’ve wanted to buy real estate in San Francisco USA online for a while now, but were put off by the high prices.

There’s a simple reason why prices have cooled off in recent months. There has been an increase in the number of homes and apartments for sale in San Francisco. An estimated 12,300 new rental units have come up in 2016, up from just 7,000 units in 2015 and around 6,700 in 2014.

Tenants have a lot of options in the rental market today and can afford to pick and choose. Many landlords in San Francisco are now offering fabulous incentives to prospective tenants such as discounts on the rent, free stay for four to six weeks a year and even free rides to the workplace.

So what explains this sudden turnaround? Trulia Chief Economist Ralph McLaughlin has an answer: “Your average buyer can’t afford a home. As buyers pull back because of price-induced reasons, there is less competition for homes, and so price growth moderates.

Now, this doesn’t mean the housing market in San Francisco has become a laggard all of the sudden. A year-on-year growth in real estate prices of 5% to 6% is nothing to be scoffed at. Most cities in the United States would love for property prices to rise at this rate.

But it’s slow for the Bay Area, which has been described as the least affordable area in the United States. An average home costs $1.15 million here and apartment rents hover at around $4,500 a month.

As McLaughlin explains, “If you look over the last 30 years at the largest markets in the US and you look at prices, the two markets that have seen the biggest increases over the last 30 years have been San Francisco and San Jose. If you were a homeowner, and if you bought the median home in San Francisco in 1986, and you just finished paying off your mortgage, you would have gained about $900,000 in value. Similarly, in San Jose, you would have gained $750,000 in value.”

So even today, a property growth of 5% to 6% in San Francisco is more impressive than what you get in Dayton, Ohio; Fort Worth, Texas; or Chicago, Illinois. Had you purchased a property in any of these places in 1986 at the median price back then, you would only gain $50,000 at best.

So homeowners will always make money over their investment in properties in San Francisco. Any cooling down of home prices and rents is healthy. In this, San Francisco shares a lot in common with other dynamic housing markets such as New York, Denver and Los Angeles.