Booms and bubbles, oh my!

One of our most-visited pages on the Paragon web site is the page on which we ruminate about 30 years of San Francisco real estate cycles, appropriately titled “Recessions, Recoveries and Bubbles”. Updated at the end of last year, this report offers a look at the past three-plus decades of San Francisco Bay Area real estate boom and bust cycles.

Why do this? Well, long-term trends and the analysis of cycles offers more context so that we can understand how the market works over time and where it may be headed. As the report notes, it’s far better than “dwelling in the immediacy of the present with excitable pronouncements of ‘The market’s crashing and won’t recover in our lifetimes!’ or ‘The market’s crazy hot and the only place it can go is up!’”

The chart that accompanies this post depicts changes in dollar values as outlined by the Case-Shiller Index method. Now, I’ve detailed some of my concerns about Case-Shiller in the past, but it does hold some sway in the market. Let’s keep in mind that if we smooth out some of the bumps, we’ll get a better perspective on the overview of the past 30 years.

Here’s a major principle in life as well as in real estate: nothing lasts forever. When the market crashes, it’s going to go up; when it skyrockets, rest assured it will one day head back south. As we’ve seen in several cycles thus (for years, in fact), a large surge in values often takes place in the first few years after a recovery starts. In this case, the recovery began in 2012 and is definitely in a robust phase right now.

Speaking of recovery, this current one has proven to be quicker than other ones. That’s likely due to a few factors:

· The depth of the previous market decline starting in 2008

· The huge boom in San Francisco buoyed by high-tech employment, population and wealth that has been hitting the city and nearby counties.

Something we have seen with impressive consistency over the last thirty-plus years is the 5-7-year period between the beginning of a recovery and the popping of a bubble. Right now we’re at somewhat of the halfway point. These days, those homes that were hit hardest by the subprime loan crisis are taking longer to get back to their peak values – but the higher-priced ones, which predominate in San Francisco, Marin and San Mateo counties have already gone past those peaks.

Remember, though, that these are just cycles and observations from those cycles. Real estate can be an odd animal and some factors – including the economic, political and even natural events – can be hard to predict.

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