San Francisco is famously the most expensive city in the United States. The growing IT industry and upper-middle-class culture both continue to draw in upwardly mobile residents from across the world.

San Francisco Rental Trends by the Numbers

The city enjoys one of the lowest vacancy rates, resulting in the proliferation of smaller housing options such as condos. Since April 2016, the number of active condos listed has increased by 40%, according to the San Francisco Center for Economic Development (SFCED). This statistic did not even include the newest units.

However, the same SFCED report states that these new starts may be outpacing demand. Condo prices in 2016 in San Francisco did not rise as they did in previous years. Although they did not fall, 2016 was the first year in about a decade that they did not rise, either.

Keeping Up With San Francisco’s Housing Demand

Single and multi-unit housing in San Francisco is experiencing nearly the opposite effect in supply and demand. Housing starts cannot keep up with demand within the city limits. This occurs even as San Francisco remains one of the most densely populated major cities in America.

The statistics seem to imply that first-time homebuyers and less established residents may be giving up on the gold rush of San Francisco. The individuals and families who can afford to live there, i.e., the people who skip over the less expensive condos to buy houses in the city proper, are the people who are currently holding up this market.

All markets, especially real estate, rise on volume, not on individual sales. Is the San Francisco bubble over?

The well respected Union Bank of Switzerland (UBS) currently lists San Francisco as one of the most overpriced cities in the entire world. In its 2017 Global Real Estate Bubble Index report, UBS noted that housing prices in San Francisco have risen 65%. Prices simply cannot maintain this level of growth over an extended period of time. Almost on cue, prices began slowing along with investment in second generation dot-com companies. Currently, prices in San Francisco are only 6% above the national average.

Add to these statistics that average incomes have not been keeping up with housing prices, and you have a recipe for a price correction.

It is worthy to note that US Census estimates disagree with UBS findings. The Census finds that the median income of San Francisco has risen 42% since 2012, from $73,012 to $103,801. This may speak to a more stable market until you also consider that the price of housing is also a controversial topic. A local Real Estate expert has chimed in with its finding that housing prices are still rising at 2012-2013 levels, and that houses rose somewhere in the neighborhood of 100%, not 65% as UBS found.

Is the Bubble About to Burst?

Different research firms will find different percentages – they consider different criteria and have different metrics. When determining the existence of a bubble, it may be more efficient to consider why housing starts began to blossom in the first place. Circa 2012, the investment in new digital tech was at an all-time high. Silicon Valley financed the growth of the city of San Francisco, and once the Valley decides to turn off the spigot, growth will probably stop. Look to the jobs and new companies, and you will likely find the most accurate representation of new housing starts.