A Double-dip for San Francisco Real Estate?


For the past 2 years, new predictions for additional, significant (10-30%) price declines – the so-called double-dip in home values – have been made on an almost weekly basis. The reasons: turmoil in financial markets, foreclosures, shadow inventory, debt crises, jobs, China, oil, the groundhog saw its shadow. For many of these pundits, analysts and bloggers, the market is always bad and about to get worse. Good stuff for headlines. Frankly, it’s a little disturbing how many people take pleasure in, even gloat over, the idea of everything always getting worse. (See the comments section of any online real estate article).

That is not to say they’re never right, much less those real estate agents who believe it’s always “the best time to buy.or sell.” What’s missing most often from the articles, blogs and predictions is context; in-depth market expertise; and understanding of location, inventory, seasonality and how buying trends can change (without necessarily affecting values). Instead, typically a single statistic, poorly understood, is seized upon to trumpet a conclusive unified theory of US, California, Bay Area or SF markets.

What will happen tomorrow in the San Francisco home market? Don’t know. Has there been a significant decrease in values since prices stabilized after the big decline of late 2008? No. Is a double-dip possible? Yes, the future is full of unknowns.

But is a double-dip likely?

Ever since the large drop from 2007-2008 peak values – 15% – 25% in most of the city’s neighborhoods – median prices in SF have been generally stable: indeed, median prices for both houses and condos in 2009 vs. 2010 were virtually unchanged. Which suggests we may have hit the bottom of this cycle. Also, San Francisco, especially its better neighborhoods, has a miniscule rate of foreclosures when compared to the state and Bay Area overall. Though some of our least affluent neighborhoods were badly hit, the predicted onslaught of foreclosures never arrived, and it seems unlikely to show up now.


Even in a stable market, median prices will jog up and down by 1-5%, because there are a number of factors besides value which affect them in the short term. It is what occurs consistently over the longer term that indicates a verified market trend. The computer generated algorithm one constantly hears about, the Case-Shiller index, may be the best available, but is still a very blunt analytical tool for something as diverse as the values of specific (relatively unique) homes in specific (relatively unique) locations. Yet it’s treated as a precision measurement – “According to Case-Shiller, home values fell [exactly] 3.7% last month” – when, at minimum, a 5% +/- margin of error should be assumed.

Consider this: the Case-Shiller index for the “San Francisco Metro Area” comprises 5 counties, encompassing wildly different markets from Pacific Heights to Martinez, Hillsborough to the Tenderloin, areas with 50%+ foreclosure rates and those with less than 3%, but every month, a percentage change calculated to one tenth of one percent is delivered as generally applicable to all.

If the market is indeed strengthening, instead of being on the cusp of another crash, what might be the reasons?

1. A growing suspicion that, 2 ½ years after the crash, the SF market has bottomed out price wise. If true, that makes it an excellent time to invest.

2. Indications that consumer optimism about the economy has finally turned a corner. Nothing impacts market dynamics more.

3. Very low interest rates that have recently started to rise. (Very motivating for buyers.)

4. Reduced inventory: among other things, the city’s flood of new condo units over the past decade is slowing to a trickle, and that will not change for years.

5. An influx of young, new buyers, from Bay Area companies such as facebook, Google, Apple, Twitter and Zynga, who strongly desire to live in San Francisco. And who suddenly have a lot of money.

6. The stock market: SF buyers are relatively affluent (by necessity considering our prices); when the stock market climbs considerably, as it has, they benefit most.

7. That old canard: San Francisco is one of the most beautiful cities in the world. It is only 7 miles by 7 miles and cannot grow larger. SF is the center for flourishing high-tech, biotech and financial industries in one of the most educated and affluent areas on the planet. Our market has always been different: it usually declines last and recovers first.


Meredith Martin is a life long resident of the bay area and a real estate professional with over 15 years experience. She can be reached at mm@meredithmartin.com.

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