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Ten factors behind San Francisco’s overheated real estate market

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It’s no secret that San Francisco’s market is competitive beyond belief. With this in mind, Paragon has produced a new report entitled “Supply, Demand, Money and Demographics: 10 Factors behind San Francisco's Real Estate Market”. As you might expect, it outlines ten elements behind today’s market conditions, investigating just why the market is so overheated. Some of these factors are general macroeconomic trends and others are specific to the city itself.

Here they are:

1) Population growth. With approximately 10,000 new residents added per year, new home construction has not kept up with increased demand. Even though there’s new construction booming in the city, these new units have yet to substantially arrive.

2) Employment growth. Job numbers are on their way up – and there are many well-paying ones. This is great for the economy, but it can also make the market more heated.

3) Surging stock market. The S&P 500 is up more than 50 percent since the beginning of 2011, with the affluent benefitting most from this increase. In turn, they’ve been buying property.

4) Brand new wealth. Tech is creating newly minted millionaires and billionaires due to stock options, company sales and initial public offerings. This is supercharging the wealth effect on the market.

5) High rents. These make property purchases a compelling concept, further overheating the competition in the market.

6) Low interest rates. As of early July 2014, the average interest rate on a 30-year fixed rate loan was 4.1 percent. For perspective, the average rate on the same loan from 1996 to 2006 was about 6.3 percent. That is a 35 percent reduction in the cost of financing, further making this a compelling option.

7) Renting instead of selling. Due to high rents and low interest rates, some property owners are renting their properties out instead of selling – many of these are doing the Airbnb thing. This is exacerbating the inventory shortage; for the first half of the year in 2013 to 2014, the number of new MLS listings is down 7.5 percent.

8) Work there, live here. Many people are taking Silicon Valley jobs and insisting on living in the city – this is known as the “Google bus” phenomenon, and it’s putting additional pressure on our market.

9) Magnet effect. Our city is gorgeous, if you haven’t noticed. It’s also fascinating, tolerant and culturally rich. Other people know it too, and they continue to flock here and pay the premium to live in our paradise.

10) Limited supply. Nearly two-thirds of the city’s housing lies in rental units, and many of those are under rent control. This means that the number of homes suitable for owner occupancy and available for purchase each year is very small.

What to do with your own piece of San Francisco paradise? Call me!

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

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