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“Winter is coming”

After four years of astronomical prices, our housing market is definitely transitioning. How much & how fast is open for discussion…

Apprehension is the mood throughout the city. Apprehension to sell now or hold off, apprehension to buy now or wait for the market to get even softer, because “winter is coming”.

SF is in the late stages of an up cycle and headed for a correction. The price index for new condominiums has declined for 3 consecutive months, but the number of houses and condos for sale is up by 26% – signs that we may be shifting into a buyers market.

Prices are falling in the condominium market due to all the new construction, which will continue to drip into the market for the next few years. This isn’t a dramatic slowdown, more like a healthy correction.

There is uncertainty over job production in the tech sector as well, which has been the fuel of the astronomical housing prices throughout the Bay Area.

The housing price hikes have been backed by 50 or so “unicorn” tech companies, some privately worth more than $1 billion. But most of these pre-IPO companies have yet to provide any liquidity to their employees, who may enter into the market if and when the companies go public- or conversely may be left in the dust if their companies slow their momentum.

Two of the most important companies in SF? Airbnb and Uber. If these two do go public we will have another bevy of young millionaires hitting the market overnight.

Google’s IPO led to 22 and 15 percent bumps in home prices in 2004 and 2005, while Facebook’s 2012 IPO led to 14 and 24 percent bumps in housing prices in the two years that followed. For now, both Uber and Airbnb continue to be able to raise capital through private markets so there is pause about going public. In the short term, this is good news for San Francisco home buyers, if possibly bad news for Uber and Airbnb employees waiting to cash in their hard­ earned equity.

Until that time, though, we may be settling into a lull—if a fleeting one

What does all this mean? The Bay Area may have some lulls in the market soon, but we should expect another surge. The Bay Area typically sees bursts of appreciation in 5-7 years spans and then a cool down that lasts 1-4 (see previous article, Shifts Happen). 

What is needed to determine to buy or sell now is an understanding of where you plan on being in the years to come? Does it make sense to cash out and buy in now or wait it out and possibly be priced out?