Anyone who reads real estate news, blogs or newsletters knows that there are 2 particularly vehement camps, each with emotional and sometimes financial attachments to diametrically opposed positions: One never stops insisting that the market is great and getting better (and apparently always will, for both buyers and sellers), and the other never stops shouting, usually gleefully, that the market is crashing or about to crash. Both marshal and exaggerate selected statistics and ignore others.
The truth is that there are cycles, lulls and fluctuations in real estate markets and no market can go up 20% a year forever (nor should we want it to). On the other hand, we do not currently see local or macro-economic conditions suggesting any imminent crash. While it is true that economic, political or even environmental crises of various magnitudes can erupt suddenly (such as, in the past 12 months, the Chinese stock market plunge, the crash in oil prices, and Brexit), the impact of these crises can vary enormously, and it is very difficult to predict when the next one will hit.
The national economy continues to show signs of strength. The Federal Reserve Bank of San Francisco recently published an Economic Outlook, listing “healthy consumer spending” as underlying support for the economy. It is expected that GDP growth will be above 2% in the second-half of the year, partly due to this increased level of spending.
Additionally, recent job gains have averaged 175,000 per month, well above the 60,000-100,000 “break-even” range needed to absorb new people entering the labor force. The latest unemployment rate of 4.9% measures slightly below the “natural rate of unemployment” of 5%. It is expected that unemployment will go down even further into next year. Furthermore, uncertainty in global markets has made “safe-haven” assets in the US, such as real estate, even more desirable to foreign investors.
The SF market is clearly in some kind of transition, currently at a relatively moderate pace, hopefully signifying what is called a soft landing from an over-exuberant state. The speed and scale of any further adjustment should become clearer over the second half of the year.