10 factors behind the San Francisco real estate market

So what’s with our market, anyway? Why is it so hot, so pricey, so competitive? Paragon has crafted a report looking at this very topic. Let’s look at ten factors called out by the report, “Supply, Demand, Money and Demographics” to see what exactly lies underneath all the hoopla.

Without ado, here are those ten factors:

1) Population growth. With approximately 10,000 new residents per year and new-home construction that’s unable to keep up with this additional demand, the market grows ever more competitive. Even with new construction booming in the city, it’ll be a while before the pipeline delivers the kind of supply we’re seeking.

2) Employment growth. With the highest number of employed residents in San Francisco’s history, job numbers are continuing to grow – and many of these jobs are very well paid. (Think the tech sector.) These people need housing, too, and are willing to put down cash for the privilege.

3) Surging stock market. The S&S 500 is up more than 50 percent since the beginning of 2011, with the affluent benefitting most from this recent large increase in the value of financial assets. When people feel wealthier, they spend – that includes housing;

4) Brand new wealth. San Francisco has thousands of newly affluent residents, including significant numbers of millionaires and even billionaires, courtesy of stock options, IPOs and company sales. This also heats up the cost of housing.

5) High rents. It often makes financial sense to buy a home if the alternative is to pay San Francisco’s through-the-nose rents.

6) Low interest rates. With historically low rates in play in the last few years, affordability when it comes to housing has been on the increase.

7) Renting rather than selling. With high rents and low interest rates at play, some owners who would have otherwise sold their homes are now renting them out, and the AirBnB rent-to-tourists option is not only adding to this, but further depressing the supply of new listings coming on-market.

8) A work-there, live-here mentality. Many tech workers live in Silicon Valley, but insist on living in the city. We’re seeing the Google-Bus phenomenon by which these people commute south in the mornings and north in the evenings.

9) Magnet effect. Our little city is an amazing place. Who wouldn’t want to live here, even if it means paying a premium?

10) Limited supply. With nearly two-thirds of the city’s housing in rental units – and much of that under rent control – there is a relatively small window of opportunity when it comes to the number of homes available for owner occupancy and purchase. This further constrains the market.

Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call 415-577-0809 or email cblase@paragon-re.com. www.ceceblase.com

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