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SF housing bubble risk down—but still worrisome

“Valuations have fallen sharply”

Pacific Heights Aerial shot of homes and a church. Photo by Smith Collection/Gado/Getty Images

The Union Bank of Switzerland (UBS) released its annual Global Real Estate Bubble Index Monday, ranking San Francisco as one of the most overpriced cities in the world. It also says that SF is the U.S. city in the greatest danger of a housing bubble.

SF’s index score for 2019 came in at 1.15. A score of 1.00 means that the firm’s analysts consider a metro area’s homes fairly priced, but a score of 1.5 or higher means they might be dangerously overpriced.

[Correction: A score of 1.00 is also considered overvalued on the UBS scale.]

While San Francisco’s current score is far from ideal, it’s much lower than the 1.44 from 2018 and 1.26 from 2017.

Of the US metropolitan areas in the 20-city ranking, SF still receives the worst marks for being overpriced. But in global terms, the city can’t compare to the likes of Munich (2.01), Amsterdam (1.84), or Toronto (1.86).

The index notes that “valuations in Vancouver, San Francisco, Stockholm, and Sydney have fallen sharply” over the past 12 months, driving down the potential for bubble-making conditions.

The UBS index is designed to “track the risk of property price bubbles in global cities” by examining variables like the rate of property values relative to incomes and gauging which cities run the greatest risk of overvaluing homes and inviting a price bubble.

However, this is tricky work: As UBS acknowledges, the existence of a bubble “cannot be proven unless it bursts,” and the index only looks at patterns rather than making solid (and impossible) predictions.

Last week, Orange County-based data firm Core Logic released its monthly Bay Area real estate analysis, reporting that the number of homes sold in San Francisco in August declined nine percent year over year—from 466 to 424—while the median price appreciated 2.9 percent to $1.35 million.

Note that those figures cover both condos and single-family residences.

The California Association of Realtors estimates that for only single-family homes in SF, the year-over-year price climbed 3.4 percent in August to a little more than $1.6 million, while the number of sales compared to that same time last year dropped 9.3 percent.