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San Francisco Home Prices Surging... Though Price Growth Will Cool

The real estate market in the San Francisco Metropolitan Division1 (MD) has experienced spectacular price appreciation over the last year. In 2013, the median price for an existing home in the San Francisco MD increased by 18% over 2012 prices, and is now just 2% below where it was at its pre-recession peak. And despite concern that this strong and rapid appreciation is indicative of another housing bubble, Beacon Economics does not hold that view.

Instead, supply and demand fundamentals have been a prime factor in the area’s recent price appreciation. Like many regions across the state, the San Francisco MD faces a shortage of homes for sales. According to data from the California Association of Realtors’ there is under three and a half months worth of home supply currently on the market – meaning the current supply of homes on the market would be exhausted in under three and a half months at the current pace of sales. This is down from four months’ supply recorded in February 2013.

The number of distressed residential units on the market is also quickly diminishing, further tightening supply. In the fourth quarter of 2013 the number of defaults in the San Francisco MD was down 50% from one year prior, and foreclosures were down 60% over the same period. Not only does this make for a smaller inventory of homes on the market, but it also puts upward pressure on prices as there are...


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