San Francisco home and condo values continue to build upon their big first quarter gains. According to the latest S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA rose 4.9% from March to April 2013. Up 24.0% year-over-year, the San Francisco Index remains 26.1% below a May 2006 peak.
For the broader 10-City composite (CSXR), home values gained 2.6% from March to April, up 11.6% year-over-year, 26.8% below a June 2006 peak.

“The 10- and 20-City Composites posted their highest monthly gains in the history of S&P/Case-Shiller Home Price Indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Thirteen cities posted monthly increases of over two percentage points, with San Francisco leading at 4.9%.

“The recovery is definitely broad based. The two Composites showed the largest year-over-year gains in seven years. Atlanta, Las Vegas, Phoenix and San Francisco posted year-over-year gains of over 20% in April. San Francisco was the highest at 23.9%. Phoenix posted 12 consecutive months of double-digit growth. Recent economic data on home sales and inventories confirm the housing recovery’s strength.”

“Last week’s comments from the Fed and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound. Home buyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans. In the housing boom, bust and recovery, banks’ credit quality standards were more important than the level of mortgage rates. The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue.”

On a month-over-month basis, prices jumped across all three San Francisco price tiers.
S%26P%20Case-Shiller%20SF%20SFH%20Tiers%2004-13.gif
The bottom third (under $417,633 at the time of acquisition) gained 4.9% from March to April (up 30.2% YOY); the middle third gained 4.0% from March to April (up 25.9% YOY); and the top third (over $728,831 at the time of acquisition) gained 4.3% from March to April, up 16.4% year-over-year versus up 15.1% in March.
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back above April 2002 levels (48% below an August 2006 peak); the middle third is back to March 2004 levels (26% below a May 2006 peak); and the top third is back to February 2005 levels, 13% below an August 2007 peak.
Condo values in the San Francisco MSA jumped 5.1% from March to April 2013 and are up 28.0% year-over-year, 14.0% below their December 2005 peak.
S%26P%20Case-Shiller%20Condo%20Tiers%2004-13.gif
Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
Home Prices Set Record Monthly Rise in April 2013 [Standard & Poor’s]
San Francisco House And Condo Prices Soar In First Quarter [SocketSite]
Uneasy Expectations For Higher Mortgage Rates [SocketSite]

66 thoughts on “San Francisco Posts Record Monthly Home Price Gain”
  1. It’s pretty crazy how much prices are going up.
    All the condos and homes I’m looking at in the good areas like Russian Hill, Marina, Cow Hollow, Pac Heights are way BEYOND their peak levels in 2007!

  2. Its probably just as well rates are going up. Might bring some dampening to a market which seems to a little crazy/irrational and slow the price increases.
    5% gains n one month is, well, a little de trop.

  3. It will be interesting to see if mortage rates put a damper on the market. Wells Fargo is quoting a 4.741% APR on a 30-year jumbo, up a whole percent in just a couple of weeks.

  4. What impact will 3-4000 rentals/condos coming online every year for the next 5 — have on prices? Will the local market soften?

  5. “The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue.”
    We are doomed.

  6. Rising rates will surely put a damper on housing prices. But the economy is healthier and we are not looking at price drops for a while. Inflation has added another 12% to the price declines since the 2007 peak, but I’m betting that a buyer in SF today (at mini-bubble prices created by low rates) will about keep up with inflation for the next several years. Rent vs. own looks better on the “own” side than it used to but it is still better to rent in SF for most, unless you plan to stay a long, long time and don’t need to worry about job mobility. Those who bought in the 2011 bottom did well, just like those who bought in 2006-7 got slaughtered. But one should never buy a home as an investment because there about 100 better investment vehicles out there.

  7. I don’t think we’re doomed. Credit has been very tight to the point of being absurd. Ninja loans were stupid but banks overreacted by denying loans to invidiuals that in any other time would qualify. First time buyers should drive a normal market and often they need a little leeway.
    I think higher rates will help moderate prices but more inventory is a much bigger issue. However, even with all the new inventory coming on line in SF I think it’s still possible an improving economy heading into next year will absorb the new units at very high prices. Look at the rents Nema is charging for 10th and Market.

  8. This market is getting way way ahead of itself. But a bit of background on why I think it does:
    The new reality of RE is that everyone has access to micro/macro information instantly. The market is self-aware, meaning buyers try to get into the cycle based on “common knowledge” from past experience and current readings.
    A 9 year cycle usually starts with 2 years of downturn, followed by 3 years of very cautious flattening, then 4 years of sustained increases. These are rough estimates, give or take 1 year on each segment.
    The reading of this cycle says we would be more or less at 40% into the bull part of the cycle. The economy has improved. Unemployment is down. RE should naturally follow suit. But the scale of this bull market is beyond what could be expected simply because everyone knows this will go on and acts accordingly.
    As with all self-aware systems, do not expect this market to behave the way you expect it to.

  9. And so what triggers the next downturn? Serious question.
    Mortgage rates may increase a bit but I seriously doubt they go to 6% or higher anytime soon. Why would the government do that?
    Locally, tech employment is still strong and rents are high. And foreign investments in SF RE have only increased in the last year or two, at least from what I’ve heard anecdotally, and are usually cash purchases.
    Ironic how the bulls/bears on here seem to be slowly reversing polarity…

  10. in most markets, the sharpest upwards moves are coming up off the bottom. That is what we are seeing now. This level of increase wont carry on for long, as new inventory and other factors help cool it down some — but by cool it down, that just means we are heading into the “normal” part of a bull market that could last quite a while with steadily increasing prices (given the normal fluctuations even minor pull-backs of any market)
    we are nowhere near the top of the broader economic recovery, this bull still has years of slow steady growth ahead of it. All the fear and corrections over the last few years have been very healthy and kept the broader economic markets from overheating.

  11. What usually kills real estate markets is mass unemployment.
    Its not on the horizon; in fact, we’re told that unemployment is in the vicinity of 5% around here.

  12. @LD, it’s not clear what triggers the next downturn. I’ll say that I expect prices to start to plateau any day now. But the low inventory / high demand is still causing some insanity in buyers out there. There was a condo at 2409 Scott (name link) that just closed yesterday at 15% over asking @ $2.5m. Nice place, roof deck w/ views but it’s also in a B-class building (maybe C), next to a busy school (Town) and could use a kitchen update. Classic Marina barrel front homes are flying off the shelf.
    Feels a lot like 2006/7 out there in terms of buyer frenzy and its not just limited to SF. East bay, Marin, Burlingame are all in the same boat. It was much easier to advise people to stand down in 06/7/8/9 on the basis that the bubble was going to pop. But that is a much harder argument to make now.
    A major stock market correction could stall things but I am not sure sellers are going to panic as quick this time. There aren’t as many “at risk” homeowners. Those who sold at the bottom are kicking themselves; and those that could hold out are now back at par or above water; and many are looking to sell and upgrade into larger digs.
    The government is masterfully engineering all of this at the end of the day. Anyone that thinks the government is going to let housing fall into a decade long slide is not paying attention. By no means am I advocating to run out and buy a home. But all the talk of a Japan-like crisis, or elimination of the mortgage interest deduction, or any other anti-housing argument are falling by the wayside nationally.
    I do think that any area that is seeing growth in real estate due primarily to investors is subject to a very high risk. Vacation homes, Vegas, Miami and other speculative markets are suspect. Places like Austin and Portland that are seeing RE growth due to economic growth are probably going to continue to outpace the markets. SF falls into this category but its hard to fathom that we’re going to see the growth of the last 12 months repeated across the market.
    Good luck out there.

  13. Maybe SF is different, but for those who think higher rates won’t mean lower prices nationally, where do you think people will get the money for the increased payments?
    In the past
    “Home buyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans.”
    ARM’s were great in a falling rate environment, but how does that work with rising rates?

  14. “what triggers the next downturn?”
    Read your Minsky. By definition, bubbles engender their own collapse. If you don’t think we’re in a bubble, 2007 would like to have a chat with you.

  15. A few theories about what could affect this market:
    – Chinese debt problems could give anyone the jitters, just like the debt crisis in Europe slowed down the recovery in 2010-2011
    – A Euro-geddon redux. Europe has been applying austerity year after year with no recovery to show for it. They bled the patient dry, governments are left with very limited leeway. Any incident would push them to the edge again.
    They’re just theories. We have learned from the past that markets look for excuses to correct when the situation has become extreme.

  16. I think with relation to SF RE, while it’s been growing too fast to be sustainable, I agree with others that a bubble burst is not imminent. It seems extremely unlikely that the rate changes will have no impact, but I think the demand is high enough that prices will continue to rise through at least the rest of the year.
    The rates have gone up enough, and quickly enough, that I’m sure a number of buyers will give up, but the amount of overbidding is extreme, but even if half the buyers drop out, it still seems like a sellers market.
    I expect, and hope, the growth rate will slow in the summer and fall, unless the rates drop back down.
    I think that a lot of the rapid rise in the bay area is that we’ve done so much better in the recover than the rest of the nation. Our unemployment rate is over 2 points lower than the rest of the nation, and as far as I can tell the jobs were are now growing are actually better than the ones that were lost, which is the reverse of the national trend.
    On the other hand prices are now getting high enough that even highly paid people are having trouble finding places they think are worth it, at least in my personal circle, which is mainly people working in the tech industry with 10-20 years experience.
    I agree that interest rates are not going to be allowed to rise too much, as neither the general economy, nor the government, can bear high interest for an extended amount of time.
    So summary: I expect price increases in SF & the Bay Area to slow, but not stop for the rest of the year.
    I make no predictions past the late fall / early winter.

  17. “Maybe SF is different, but for those who think higher rates won’t mean lower prices nationally, where do you think people will get the money for the increased payments?”
    I don’t think the relationship is that simple though, especially during a booming local economy and tiny inventory like we have right now. It will slow things though of course compared to if rates stayed the same.
    Prices were falling during 2009-2011 while rates were dropping, its feasible both could increase in tandem too.
    Rates were rising approximately 2003-2007, and 1998-2000 as well.

  18. I think we’re in late 2004 territory. So the answer is “yes” to whether or not it is a bubble, but we’re at the beginning stages and it doesn’t have to keep going up, and therefore it doesn’t have to implode. For it to give us 3 to 4 more years of crazy price gains resulting in an implosion we’re going to need to get FAR easier credit. The stock market will also have to keep going up.
    As for predictions I’m with Eddy that “any day now” prices will level off and then we’ll be steady as she goes for 2 to 4 years. The only problem is that “any day now” could be 1 year from now after another 20% gain – which will be a worse bubble than today, and is the kind of thing that might get lenders acting nuttier, or cause problems for those who buy at the new top.
    Finally, its been a long time since I enjoyed the comments section at SS – no fluj or tipster, and we get thoughtful analysis of the market from various perspectives. But the clarification about Case Shiller’s “San Francisco” needs to be in the first sentence. No one in their right mind thinks the City is 26% below the last peak. We are at peak, and starting to move above in most of the areas I track/work.

  19. So it sounds like the general consensus is that the local market is definitely overheated, but is not expected to reverse course. Instead, rising rates and new inventory coming online will help soak up/remove some of the demand and make the market more balanced.
    So second genuine question, do folks think SF prices have an upper bound? In other words, how will we know when we do reenter bubble territory? It appears that rents have stabilized now after rising a lot over the last 24 months. How long can prices keep rising with static rents?
    For example, Soma 2-bedrooms are renting for around $4,500 – 5,000/month right now and selling for $1-1.2 million. Assuming some future appreciation and 20% down, that’s around breakeven based on one’s tax situation (rough math). How much can someone expect that 2-bedroom to be worth in 2017 in the event rents don’t rise another 25% by then?
    I no longer have a dog in this fight, just curious what people think since, as I mentioned, a polarity shift seems to have occured.

  20. I wanted an excuse to post about 2737 FIlbert, an ok house on an ok Cow Hollow street, which has had an interesting history over the past few years. I think it’s an apple, at least it is from its last sale in 2012..
    Sold in:
    2006 – 2.7
    2011 – 2.56
    2012 – 2.65
    2013 – 3.2

  21. “So summary: I expect price increases in SF & the Bay Area to slow, but not stop for the rest of the year.”
    This is the same prediction I heard 6 months ago. I hope it will be true.

  22. @hangemhi,

    But the clarification about Case Shiller’s “San Francisco” needs to be in the first sentence. No one in their right mind thinks the City is 26% below the last peak. We are at peak, and starting to move above in most of the areas I track/work.

    Not to pick on you, but doesn’t the Shiller index keep track of more data than any single one of us? Why do people tend to put more weight on their direct but limited experience than statistics?

  23. I think the ceiling is very much related to the rent / buy ratio, which is very much influenced by interest rates on the buy side.
    I look at rental prices as the floor, when it’s about the same cost to rent as to buy prices can, and almost certainly will, go up. This was true until quite recently as far as I can tell.
    On the upper range, when it’s about one and a half to twice as expensive to buy as to rent, it’s extremely unlikely for prices to go up, unless interest rates drop significantly and quickly. In this scenario prices are most likely going to go down.
    I don’t personally look at it as a price ceiling, but a payment ceiling, as the price is very much affected by the interest rates.
    I took a quick look and it seems like prices are still reasonable when compared to renting. For example, the NEMA building has rents for 1 beds between about $2,800 and $4,300. At 4.5%, including property taxes at about 1.25% you could get a loan between $450K & $690K, respectively and have roughly the same payments.
    I found four 1 bed apartments for sale at the SOMA Grand, probably the closest comparable building. Asking prices are between $599,000 and $799,000. So it might be tough to find something comparable on the lower end, but at the upper end it seems like current prices are actually reasonably close to rents, meaning there’s still room for prices to go up, unless rates go up significantly from here.

  24. “I don’t think the relationship is that simple though, especially during a booming local economy and tiny inventory like we have right now. ”
    Actually just looking at payments for the same loan type and price it is exactly that simple. Higher rates equals a higher payment. The only question is what will people do about it. Suck it up and make the higher payment or higher down payment are two options. For SF proper that seems like it could happen. Nationally I’m not so sure that’s possible. I agree with lyqwyd that the middle class has been hit hard. And even if people could cut into their disposable income and make higher payments, won’t that be a big hit to consumer demand?
    For 2003-2007 people dealt by moving into more exotic loan types. Then those got shut down in the 2009-2011 era. That could happen again, but I think that ARMs will be a different ballgame in a rising rate world.

  25. @denis, 2373 Filbert is an apple to the best of my knowledge. It’s crazy out there. As much as say I think prices will level out; I do think that prime properties that tug at the heart strings have the potential to pop substantially. The thing I’m seeing now is the condo market starting to catch fire as SFH buyers priced out of SFHs start looking at condo alternatives. Hence the condo I mentioned above.

  26. Follow-up on Rent vs. Buy. Here’s a couple relatively recent articles indicating that it’s still cheaper to buy than rent:
    http://www.huffingtonpost.com/jed-kolko/until-mortgage-rates-hit-_b_3442780.html
    http://trends.truliablog.com/2013/03/rent-vs-buy-winter-2013/
    They both say that while it’s cheaper to buy than rent in SF (19% cheaper to buy), it’s even more true throughout the nation, in Detroit it’s 70% cheaper to buy! I have
    These articles should probably be taken with at least a few grains of salt, but they lead me to believe home prices are not likely to drop any time soon.

  27. From firsthand knowledge of placing offers over the past several months (albeit in Berkeley and Oakland) it is definitely competitive out there, but in some respects each home is a market onto itself. If property X sells for a million it doesn’t mean therefore property y should to. It seems basic but a lot of realtors, mortgage brokers etc. in this market have a vested interest in promoting that mindset on buyers. If someone overbids by a crazy amount you don’t want to use that comparable as the basis of your decision. Comparables do matter, particularly for condos, but there is never exactly a like for like. Also, as a buyer it can be difficult because you have no information regarding the competing offers. Don’t make the mistake of bidding against yourself! I have noticed a few realtors recently are writing “relative” offers where you can start lower and define a “not to exceed” point. I don’t think selling agents like it but it does mean as a buyer you don’t have to go with your highest offer from the get go and it could save you literally tens of thousands of dollars. Hard to know if this will catch on but it does give buyers some flexibility.

  28. A major factor in the SF RE market specifically has been the rise of the buses to Silicon Valley employers. That has made it easy for ~10K young, well-remunerated workers to live in the city — which means that if anything the San Francisco employment numbers understate just how much wealth is sloshing around right now.
    More psychologically, it’s pretty clear that people are buying on fear. I’ve had two young lawyers in my firm buy this spring because they were afraid of being “priced out.” I take that as a flashing red bubble sign: when the corporate lawyers feel they can’t afford the RE, something is fundamentally off in the equation.

  29. Whats the market saying….Case Shiller futures are traded I believe but I can;t seem to find right link…anyone know where these might be..?
    Ed??

  30. Rents are at an all time high but even this is a bit of a story as many people are over-crowding rentals. Plenty of 4500 rentals jammed with 6 or 7 people each paying 800-1000/mo for a closet and more for a bedroom. Lots of distortion out there. The market is really driven by well paid tech workers; many of whom are compensated better than corporate lawyers. Wait till Twitter files their S1 and then you will see a frenzy.

  31. @LD, trust me, if I could have a signature on my posts here I would put that famous fail at the top line. I’ve no issues with making predictions and no one is ever right 100%. Wish some others would put a stake in the ground from time to time around these parts. FWIW, I think I also may have put in a plug for FB at some point. And I still think FB has a decent future in front of it even though it has perhaps the most risk of being taken out by the next generation. Regarding Twitter, I think this is the crown jewel of market right now and it seems that nothing can stop it. However, in retrospect, perhaps I’ll should stick to real estate predictions. 🙂

  32. Willow speaks wise words! An anecdote: we sold our flat a couple months ago at about 25% over asking (and we priced it very fairly, no bidding war solicited). Agent told us the buyers had been outbid on four places. They came in at 15% higher than the next bid. I.e. they “overpaid” by almost $100,000. Happy to have the dough, but frankly I took no pleasure in their paying that much (no, I wasn’t going to be a saint and take less as my kids’ college accounts are basically now fully funded). The buyers were very poorly advised by their agent, or perhaps they overruled her and said “no, we want to bid more to make sure we get it.” Either way, they would have been wise not to be so desperate.
    On the flip side, before we got our place last year we lost out on a couple of places where we would have paid more than the “winning” price but never got a chance to up our bid because the seller accepted the highest offer. I wasn’t willing to open with our “top price” for fear of overpaying. Crazy, inefficient way to sell property as it can so easily screw either the buyer or the seller. This all worked out great for us as we ended up with an awesome place at a price that really seemed unreasonably low – got it due to a confluence of fortunate events, and when mortgage rates were just a few bps away from the ultimate bottom. Glad we were patient, but it is all very frustrating!

  33. In some countries you are not allowed to sell a place for more than the price advertised for consumer protection reasons (false advertisement laws). It’s challenging in these conditions for a non-professional to gouge fair market value and a crook can underprice your place to get it sold to friends or family. Unsophisticated sellers are the ones getting the shaft.
    The US bidding process is similarly shady since none of the offers are public knowledge aside from a wink-wink. This time, it’s the buyers getting the shaft.

  34. Willow’s story about buyer giving a relative price with a “not to exceed” point is actually a good mechanism that encourage buyer to bid on the true value to the buyer. It is basically a “second price auction”. This is what eBay uses in its auction.

  35. @eddy
    That seems like quite an exageration. I see rooms in shared apartments in reasonable neighborhoods going for about $1200-$1500 a month, cheaper if it’s a small bedroom, but still a bedroon. Pretty expensive for sure, but I think it’s pretty rare to find 6 or 7 people in an apartment, unless it’s a 5 plus bed space.

  36. OK, I’m probably a over estimating the pricing being paid for closets. Here is a story of a guy renting a laundry room for $500. And there is a large community of young kids in and around the city living in these situations.
    http://www.sfgate.com/realestate/article/Startup-dreams-meet-pop-up-rentals-4226675.php
    Point is that we’re at near zero rental vacancy and people are cramming into whatever crevices they can find and paying for them. Rents will not / cannot skyrocket because people who are forced to rent generally have a cap.
    My thesis is that it skews the analysis on the rent/buy situation where buyers have more capacity to pay up. Anyway, I’m not trying to make some massive market revelation; just speaking my mind and sharing an observation. And thanks for fact checking on my original #s as I think the revision / clarification is helpful / warranted.

  37. I agree that rents do not have much room to climb, I think they’ve reached close to the peak of what people on average can afford, maybe a little higher, but definitely no more of the big increases we’ve seen over the last year or two.
    I think your overall assessment of the rent/buy situation is pretty spot-on.

  38. Rents can climb higher. There’s almost no supply and people are already used to lower their expectations. Office workers looking today have to accept to bunk together like students. A friend of mine was sharing a 2/2 with a couple, both working with decent pay. The same place could accommodate 4 incomes. Many office stiffs can afford $1500 a pop, therefore 2/2s could go to 5-6K. And if supply or demand are not re-balanced, then the income levels of people doing that will go up.
    There are more and more new people coming with good incomes. With very limited turnover, it only takes a small number of affluent tenants to bring market rent to the stratosphere.
    In the mean time protected rent crawls at less than a 2%/year increase, burying 10,000s of tenants even deeper into the gilded cage of rent control, and totally killing turnover and preventing recognition of real rent value.
    Some former neighbors I left a few years back were paying 50% of market rent in 2010. Today, it’s 35%. They were not moving then. They sure will never move out, short of winning the lottery.

  39. Not only can rents climb, they can climb a LOT. Just look at Manhattan. Another grossly distorted market with astronomical rents for newcomers, a huge protected class of rent-controlled oldies and another protected class of low-income people living off the government’s dime. Sound familiar? It should.

  40. rents are based on income, and while you might see the occasional 2 bed with 2 couples, this is not the norm, and never will be. There are thousands of new units coming on the market over the next 1-2 years.
    People simply do not like being packed in like sardines. They might put up with it for a little while, but it’s not a situation that will be lasting.
    People can also move to other cities, I’m already seeing it in my small company with a couple people having moved from SF to Oakland.
    So while rents can theoretically increase, they are not realistically likely to increase significantly from here. Although I haven’t been paying close attention, what I’ve seen already indicates the rental market has cooled off.

  41. I actually lived in a large walk-in closet for a couple of years. I needed a place to stay in NY about 1 week a month, hotels cost a fortune so I rented out a closet off a hallway. It was about 7ft x 3ft and would hold a mattress on the floor, a shelf for some clothes etc., and people still hung their jackets up at the end where my feet went.
    But, hey, $300/mo is unbeatable.
    You’d be surprised what people will do to squeeze in and save a buck.

  42. Take a better look at the sfgate story. The kids in it aren’t office workers being paid better than corporate lawyers forced to share space. One is completely unemployed, the other two are trying to bootstrap startups. Even for VC funded start ups few even get to do as “well” as Zynga. Most die quietly. For unfunded startups the odds are even worse. And I really doubt an artistic T-shirt company started by a former deli manager is getting funding.
    This is a story about a bad job market for new college grads, who bunk together like students because they’re barely done with being students, combined with economic pressures that entice people to rent out rooms for extra cash.
    Even if these “startups” don’t work out financially though, this is probably the right move for these people. Being unemployed in your parents basement in suburbia is no way to start your adult life. Even a failed startup is better on the resume than being idle and it’s easier to build up your network in a big city. Plus SF is fun and at that age you probably don’t mind the living conditions.
    When big-law partners start litigating over who gets the top bunk, then you’ll have a story about zero rental stock for the affluent. That’s not what this sfgate story is saying though.

  43. Yes, some people will squeeze in to save a buck, especially when it’s a secondary space only used occasionally.
    I once new a recently divorced guy who had a bed set up for himself when his son came to stay on weekends. He slept in the bedroom during the week, and the closet on the weekends so his son could have the bed. This lasted for a while, but was also not a permanent situation.
    These are extreme cases and nowhere near the norm, so has little impact on prices.

  44. Yes, people already in their careers might not want to put up with these arrangements very long.
    But due to rental distortion and ridiculously low turnover the market is happening at the margins. Overall the demand will accept much worse arrangements than what mainstream established tenants would accept.
    There’s a cap to everything, I agree. I am not sure if the recent plateau in rent will be the norm for the market or if people will accept more extreme.

  45. Basically, I doubt that people will start doubling up significantly more frequently than they already are, so that scenario will not be any significant impact on rents.

  46. lyqwyd: I honestly don’t see why that should be the case. As long as SF is attractive to people who can’t afford a place by themselves, people will double up. That’ll end when it either stops being attractive, or when places are cheap enough that people choose to avoid roommates.
    It doesn’t seem likely that either one of those will happen in the near future.

  47. “As long as SF is attractive to people who can’t afford a place by themselves, people will double up”
    Or they will rent in Oakland or elsewhere in the east bay, or Marin, or the south bay. Or they will simply settle outside the bay area. There are many, many economic factors that stem rents increasing to infinity even for an “attractive” place. That’s why 1BR places don’t currently rent for $10,000/mo. And it’s why about 85% of the bay area population does not live in SF (that, and because most people in the bay area simply do not want to live in SF).

  48. Stopping by for the first time in a long time. Its shocking to me the quality of the comments seen here.
    Back in 09, this place was overrun with idiots, first projecting prices continuing another -40% down, and then (as things were improving) torquing and twisting every good data point as somehow, secretly being doomish.
    Not sure what happened to those guys, but glad to see the commentary on this site is actually useful again…

  49. I never said people will not double up, I said they will not double up any more frequently than they are, at least not enough to affect rents.
    In my opinion, doubling up is a reaction to high rents, and actually helps to mitigate high rents, AKA reducing aggregate demand. When people double up, where once there were two people competing for space, there is now only one. It is not the cause of rent increasing.
    It is my belief that rent increases mostly due to income increasing. A strong economy can also increase demand by pulling people from other areas, but I believe this to be a smaller factor than income.
    Summary: Doubling up exists, always has existed, and always will exist. But it is not much of a factor in rent prices increasing.

  50. lyqwyd,
    Landlords will not increase their rents if this means leaving their place empty. They’ll try, and if they do not get any prospects, they’ll lower their expectations. That’s what happens when supply and demand are comparable.
    Now if you have 20 tenants going after 1 unit, the landlord can ask an price higher than a few months before and one or more of the tenants will find a way to make it work by being creative, like doubling up, or doing AirBnb.
    I know a girl who rented a 2BR with her boyfriend in NYC. They split up, she kept the lease and rented out 2 spare rooms (more like large closets). The landlord learned about it and negotiated a higher lease (or else…). Higher density, higher rent.
    This is not in any way typical. But when the pressure is there, prices will creep up.

  51. Witnessed a conversation on the bus that speaks to the tight rental market. Pair of young twenty somethings discussing strategies for trying to find a place to rent. They were heading out to a neighborhood where they wanted to rent and were going to wander the streets looking for “For Rent” signs to try to find a place that wasn’t being listed on Craigslist so they might have a chance at getting a place. Been a long time since I overheard conversations like that. Of course back when I was a renter that was how we ended up finding a place in late 90’s tech 1.0 boom.

  52. I wouldn’t be so sure about that, lol.
    Small fry landlords might yield, maybe, but if I was facing the prospect of having a tenant at an ever-declining (in real terms) rent living in my property for 10+ years… I would make sure to squeeze every last dime out of them on day 1 because you’ll never get another cent in “real” rent increases for as long as they live there.

  53. As a neighborhood/city becomes more desirable, doubling up does increase, as people begin to reevaluate the equation between extra space and being near other amenities.
    As density of stuff continues to increase (and factors like height limits and rent control restrict supply of new units being built) the increase in demand for an “entry” into the neighborhood separates from the increase in demand at the square foot level, meaning that renting a place to four people at $1000 each is possible, where renting the place to a person or family at $4000 isn’t possible.
    This type of thing does happen and DOES increase rent, as landlords look to renting to a new demographic. It may not have a huge effect, but it’s greater than zero.

  54. Jimmy (No Longer Bitter),
    I think you misread my post. Only the first paragraph gives a view of a non-bullish market. SF is not in that case I think. Au contraire, market rate tenants are currently being squeezed as much as possible, precisely because of the landlord’s fear of rent control.

  55. @lol
    I’m not sure why you addressed that comment to me. I don’t disagree with anything you said, nor does it contradict anything I said.
    I already said prices can rise, just not significantly. That’s my prediction and I could certainly be wrong.

  56. @anon
    I’ll say one last thing about doubling up, which is really just a repeat of what I’ve already said, and then I’m done with this particular topic, as it’s really just opinion on both sides and none of us have any real proof to support our theories.
    My theory states that doubling up is a response to increasing rent prices, and thus causes a reduction rent prices, all else being equal, as it lowers overall demand, although it’s a trivial reduction in my opinion.
    I understand the arguments that since people are doubling up they can pay more, so maybe it is a wash and has a net zero impact. But as I’ve already said, it’s a small portion of the market, that is not changing significantly, so even if it does cause prices to rise, it does not do so in any significant way.
    I will keep my opinion: doubling up does not affect prices in any significant way. My opinion is entirely unsupported by any evidence, so if somebody can show me some evidence to the contrary I’m perfectly willing to abandon my theory.
    Until then we can agree to disagree.

  57. @lyqwyd – fair enough. It is tough to gather evidence of either way, because typically doubling up is only going to occur in places where rents are already increasing – so it’s very hard to tease out if the doubling up is slowing the increases (your theory) speeding the increases (my theory). It’s very, very rare to see doubling up in an area of stagnating or declining nominal rents.

  58. We could reverse the question, because it seems like you’re swimming counter to the current 😉
    The latest flattening of rental prices could be your proof. But the question is whether this is a temporary pause or a permanent plateau. Tough to prove.

  59. No argument there, I certainly have no proof that rents wont rise significantly in the near term, and please understand, I’m not saying you guys are wrong, just saying things from my opinion.
    I think your arguments are just as reasonable as mine.

  60. (Not the anon right above)
    I think the sfgate article has it right. Doubling up is mainly a phenomenon of low income/no access to credit. Maybe you don’t see this because the population of people who normally do this aren’t in your social circle, but I’d guess that most doubling up is by the cash economy, transient worker, undocumented, unbanked and the like.
    It’s only news because some, college grads are doing it. The recovery has been great for high asset, high skill people. But although their trajectory will still be upwards, new college grads are debt heavy, asset light with erratic earning potential. Not really what a landlord wants to see on a credit application
    My opinion is that any college grad doubling up is minor compared to the other type.

  61. ^Not really sure how that is relevant to the discussion of whether doubling up increases or decreases prices? Of course most doubling up happens at lower income scales, but that’s going to have a similar effect on prices, just a different mix of units.

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