San Francisco RE Market May Finally be Cooling Down

San Francisco has long been a hot market in California, attracting many buyers, especially amid a tech boom, which has pushed prices up and inventory down. But the market may be losing some of its steam now that buyers have become hesitant. What does this mean for the future of the high-end San Francisco market? Will buyer hesitation spread to other markets and price points in California?

Real estate agents in San Francisco have seen their clients become cautious in the face of a reeling stock market and concerns about global economic stability and growth.

Nina Hatvany, who has been a San Francisco real estate agent for 25 years, said, “I have a number of buyers who are just more hesitant. They look and they talk and then they start arguing with me about the slow IPO market and overvalued unicorns. I feel like I have to argue with them about how nice the house is.”

As technology stocks slide – the Nasdaq is down 15% this year – and private tech valuations suffer, real estate brokers say the furious clamor for high-end homes in San Francisco has died down.

“Somebody who might have pulled the trigger at $5 million last year now might be a bit more cautious,” said Josh McAdam, a real estate agent with Pacific Union in San Francisco. “It’s not the same environment.”

McAdam noted that demand remains strong for homes selling in the $1 million range, but the high-end residences in the City by the Bay now need to boast all the right finishes to attract buyers.

An important question this brings to mind: Will the more cautious tone now defining the ultra-high-end of the market spread to other price points? Christopher Palmer, an associate professor at the Haas School of Business at the University of California, Berkeley specializing in the housing market, said the biggest threat to price appreciation is a downturn in tech. So much of the Bay Area economy is reliant on the sector.

“Tech stocks have taken a beating in the past few months, and every time there is a stock market correction, people start to wonder if the spigot of capital that has fueled so much Bay Area growth is about to be turned off,” Palmer said.

Analysts at Fitch raise another concern, arguing that home prices in San Francisco have “risen to a level unsupportable by area income.” Home prices set a record last year and are now more than 60% above the post-crisis low of 2012.

Still, home prices may fall in San Francisco. “To many prospective homebuyers in the Bay Area, this is great news,” Palmer said. “There is a substantial amount of young families that would appreciate a slowdown in appreciation to be able to get into a home.”

Are you concerned buyer caution will spread to other markets in California? Let us know your thoughts.

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