Looking at 10 factors behind the San Francisco market

What makes San Francisco’s market the way it currently is? This question intrigued us at Paragon so much that we did a bit of an investigation on the topic. Below find the details and don’t forget to consult the accompanying charts for more of the nitty-gritty.

Without further ado, 10 factors:

1) Population growth comes in the form of approximately 10,000 new residents annually, with new-home construction not nearly sufficient to house these people. Though new construction is having a boom time in the city, much of it lies in very pricey projects being largely snapped up by wealthy buyers with primary residences elsewhere.

2) Employment growth has been seen in the fact that San Francisco now has the highest number of employed residents in its history, with numbers continuing to expand.

3) A surging stock market has had the S&P 500 up more than 60 percent from January 2011 to January 2015, with affluent residents benefitting most – and San Francisco’s population is one of the country’s richest.

4) Brand new wealth comes from this stock market, with San Francisco ranking third in the nation in the number of “ultra-high-net-worth” residents, according to Wealth-X.

5) High rents can make a compelling case for purchasing a property given the attendant multiple tax benefits and equity accrual as well as the possibility of future appreciation.

6) Low interest rates mean well under 4 percent these days, or at least as of early February Compare that to the 6.3 percent average on a 30-year fixed between 1996 and 2006 – that’s a 37 percent reduction in the cost of financing.

7) Renting instead of selling is becoming more common due to the above two factors, with the AirBnB rent-to-tourists option likely sweetening the pot. This further brings down inventory.

8) Work there, live here is an ethos that is relatively recent, with many people working or taking Silicon Valley jobs insisting on living in the city. Just look at all the tech buses traversing our streets every day.

9) Magnet effect is happening in our small city, just seven by seven miles square. Its beauty, cultural richness and incredible tolerance attracts people constantly. Can you blame them?

10) Limited supply is also a major factor in today’s market. Nearly two-thirds of the city’s housing is in rental units, much of which are under rent control. That means that the number of homes suitable for owner-occupancy and available for purchase each year is relatively small.

Additionally, tax benefits, while more of an ever-present factor than a current one, are a major factor since the ability to deduct interest costs and property taxes can make even expensive homes more affordable to buyers. Additionally, the $250,000/$500,000 exclusion of gains resulting from the sale of a primary residence is an encouraging factor.

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