Is a New Housing Bubble Forming in San Francisco?

San Francisco’s housing market has been a hot topic in the news due to its increasing prices and fierce competition, but trouble might be lurking in the distance. While the bay-area markets have remained strong throughout the year, recent projections have indicated the market will dip towards the end of the 2015 and into the New Year. Now, many experts are debating whether these projections are part of a healthy recovery, or a warning sign of a new bubble forming.

Collateral Analytics’ California Home Price Forecast Models has uncovered the warning signs that a bubble might be forming in San Francisco. The findings aren’t exactly surprising since San Francisco continuously tops lists of the country’s most expensive real estate markets, is known to be a hot bed for bidding wars, and that demand grossly outstrips supply.

Silicon Valley is one of the areas that have experienced several issues related to a price bubble, including increased wealth from a booming IT industry, international demand for real estate, limited supply, and low interest rates. As the tech industry continues to grow in the area, those who work in the industry will be able to afford the more expensive houses, thus prompting nicer and pricier homes to be built.

Interestingly, the San Francisco housing bubble is just one of the localized bubbles that are showing signs of forming in the country. Other cities across the nation are experiencing similar high prices in their respective housing markets as housing prices are rising faster than the homes are going up on the market.

“In our June report, we went on record with concern of bubble markets across the U.S. Now San Jose is starting to go the way of San Francisco, at peak levels and now leveling off. Both San Francisco and San Jose have been red hot markets, supported in large part by strong job growth,” said Alex Villacorta, vice president of research and analytics at Clear Capital.

“The latest numbers reveal, however, that both markets have reached their apex in the most recent upward price swing and are projected to take a slight dip into negative territory through the second half of 2015, by -0.2% and -0.4%. While both markets are projected to have total 2015 yearly growth rates of around 3%, entering winter 2015-2016 on the down side is of great concern. What started as ‘red hot’ at the start of 2014 may end as ‘in the red’ come 2016,” continued Villacorta.

Do you think the projected dip is a warning sign of trouble ahead? Should agents and brokers dismiss this data as nothing more than a market catching up with recent growth? What are your thoughts?

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