There has been lots of talk lately about a San Francisco housing bubble as home prices have soared upward at rapid rates. But do we really know a bubble when we see one? Urban think tank SPUR has put together a helpful explainer on the difference between a housing bubble and an affordability crisis. In a bubble, prices are high relative to historical norms and cannot be explained by supply and demand. Prices are also high in comparison to rents. An affordability crisis, on the other hand, is largely driven by low supply and high demand, and also sees high rents alongside high sales prices. In this situation, prices are high relative to incomes and to other cities. So, which one'll it be, SF?
The bad news is that SPUR says we're in an affordability crisis, not a bubble. And the even worse news is that affordability crises can last for long periods, while bubbles eventually burst.
The San Francisco housing market, according to Trulia chief economist Jed Kolko, isn't really that overvalued when you consider current median incomes. When Kolko looked at the historical relationship between median income and medium home prices in the San Francisco area—including Marin and San Mateo—he found that houses here are only 6 percent overvalued right now. Compare that with the height of the housing bubble, just before the 2007-08 crash, when housing was a whopping 53 percent overvalued.
So the painful truth is also the glaringly obvious one, after all. SPUR reminds us (as they are so good at doing!) that San Francisco's real estate prices are through the roof because of supply and demand. So while millennials and baby boomers alike are pouring into the city, not enough new homes are being built for these new arrivals. New housing supply is way behind demand all over the Bay Area, from the city itself to San Mateo County, the East Bay, and the North 680 Corridor. Unless new housing construction goes gangbusters or something else changes dramatically, high prices will stick around for some time. Maybe there's still a tech bubble that could burst?
· Are We in An Affordability Crisis or a Housing Bubble? [SPUR]
· No Surprise: SF's Housing Market Was Bonkers This Spring
· San Francisco Is Expensive, But Millennials Are Coming Anyway
· For Buyers, Hard Lessons in San Francisco Real Estate Math