Housing

Warning Bells Grow Louder for San Francisco Housing Prices, Also Parts of Texas and Florida

Jon C. Ogg

Published: February 8, 2016 12:35 pm

Last Updated: January 13, 2020 1:28 pm

California was the epicenter of overvalued and fudged mortgages ahead of and into the Great Recession. If you have watched the media reports and documentaries of how fast San Francisco is changing, you might not be shocked to hear that San Francisco housing prices are beyond price levels that make sense. Other regions were seen getting too hot to handle as well, like parts of the Texas and Florida markets.

Fitch Ratings reported that Bay area home prices are getting too hot. Fitch released its latest quarterly U.S. sustainable home price report, which shows that certain housing markets are becoming overvalued — most notably in San Francisco.

There is a dire warning for those who do not work for the top technology and social/cloud titans in the Bay area. Fitch warns that home prices in the Bay area have risen to a level that is now unsupportable by the area’s income. The booming tech sector is to blame.

Fitch pointed out that San Francisco home prices hit an all-time high in the third quarter of 2015. This is now said to be up over 10% in the past year alone, and prices are some 62% above their post-recession low in early 2012.

The San Francisco housing market is now roughly 16% overvalued, and the warning is clear: The last time the Bay Area experienced this kind of home price growth was during the dot-com era from 1997 to 2000.

Other price increases in some markets Florida and some in Texas are also viewed as outpacing sustainable growth.

On a national basis, the housing oversupply on the heels of the recession has dried up as the inventory for sale has declined. The percentage of new homes sold prior to completion has also said to have normalized, while new home construction spending continues to show strength.

For one market to become overvalued is not a broad systemic issue. For multiple markets becoming unsustainable, that is something that real estate watchers should be paying attention to.

Now think further about some of this. If cloud, social media and other app or services businesses online start to suffer under their own industry weight, it could become a much more serious issue. Of course a lot of this depends on what the broader economy does between now and the end of the year.