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San Francisco Real Estate Market Showing Same Signs as 2000 Tech Crash

Posted by Hannah Raissa Marfil on Feb 10, 2016 09:16 AM EST
Median Prices Of San Francisco Homes Reach Million Dollar Mark more big
SAN FRANCISCO, CA - JULY 17: A row of homes stands in front of the Golden Gate Bridge on July 17, 2014 in San Francisco, California. According to a report by DataQuick, the median price of new or existing single-family homes and condos reached $1 million. (Photo : Justin Sullivan/Getty Images)

2015 saw the rise of home prices in the San Francisco area and the trend is expected to continue in 2016. The strong pace of home prices now also bears striking similarities to the real estate market conditions observed prior to the tech crash back in 2000.

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Home prices in San Francisco have reached an all-time high in the third quarter of 2015 and are now roughly 16 percent overvalued, according to a report from CBS SF Bay Area, which cited latest data from financial research company Fitch Ratings. Home prices increased more than 10 percent in the past year. This was 62 percent higher than the San Francisco real estate market's post-recession low in 2012. The reason for the surging home prices was attributed to the growth of the tech industry in the area. 

Fitch Ratings' Managing Director Grant Bailey stated, "The last time the Bay Area experienced this kind of home price growth was during the dot-com era from 1997-2000."

Although San Francisco has shown an increase in home prices, some real estate professionals predict that a correction will happen in the market soon, Market Watch reported. John Burns, chief executive of his California-based real estate firm John Burns Real Estate Consulting, shared that San Francisco is "on our watch list for a correction." He explained that the region may have become one of the most expensive markets to live in given its high home prices; however, he noted that the surge in prices and rental rates were fueled mostly by speculation. 

Burns added, "Affluent older buyers, often for investment reasons, have identified San Francisco as a place they want to own or live and have driven up prices dramatically." He commented that around a third of the cash homebuyers in the San Francisco Bay area purchased homes only as an investment.

Burns' firm, along with San Francisco-based real estate brokerage Pacific Union also mentioned that based on the "appreciation of rent prices and venture-capital deals, the Bay Area's rapid property value and rental cost appreciation today is looking more like a repeat of the dot-com bust of 2000," according to the same report.

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