Real Estate

Is the sky the limit? Prices are high, but are they a bubble?

When does a market turn from being a fun ride to a scary bubble? photo: Frédérique Voisin-Demery from Grenoble, France

A question I am asked frequently by San Franciscans is, “With prices this high, are we headed for a bubble?”

I know prices appear to be rising to levels that cannot be sustained. The home affordability index keeps going down in San Francisco and some surrounding areas. For some people, the prices are out of reach. But for others, even as they rise, they still remain “affordable.”

Price always stems from supply and demand for nearly anything. I’m sure some might remember the gas crisis in the 1970s, when there were long lines for gas, and the stations could set the price to just about anywhere they wanted. Prices rose by quite a lot, but people still waited in line because they wanted gas for their cars. That was a direct result of supply and demand. We are experiencing much the same here in San Francisco and the desirable surrounding area. Records are being broken, but buyers are still buying.

The continued lack of supply in the housing market directly fuels the situation we’re currently experiencing. According to the National Association of Realtors (NAR), in the first quarter of 2015, 51 metro areas in the nation saw double-digit price increases; up from 24 areas that saw a comparable rise in the last quarter of 2014. San Francisco, of course, is among those areas seeing double-digit increases.

Many buyers are feeling more confident and want to lock in lower interest rates before they rise, which the media frequently warns will happen in the coming months. And while buyers are feeling confident, sellers are often hesitant to sell because they don’t know what they will be able to afford or find once they’ve sold. Their understandable hesitation is a large factor that has contributed to the city’s low housing inventory. According to NAR, San Francisco was the second most expensive housing market at the end of the first quarter, and predictions are that home values will continue to rise.


I thought you would like a couple of examples of ultra high-priced home sales. In August, the highest sale ever in Marin County occurred in the luxury town of Belvedere. Locksley Hall, a 12,000-square-foot historic mansion, sold for $47.5 million. It is an exquisite and beautiful property, and the sellers reportedly spent $32 million restoring the mansion with its sweeping views. I’m told the buyer of Locksley Hall is from the tech sector, which is where we are seeing many of the high-end buyers coming from these days.

Before this sale, the highest sale of the year in Marin was $13 million, and four home sales over $10 million have been in Belvedere.

In San Francisco, the highest sale so far this year was on the Gold Coast in Pacific Heights on Broadway. The property went for $31 million. That property, similar to Locksley Hall, was also a noteworthy 19th-century home in a prime location. In San Francisco, there have been nine sales so far in 2015 over $10 million, according to the Multiple Listing Service — all on the Northside.

So the question remains: Is the sky the limit? It appears that there are quite a few qualified buyers out there interested in buying these multimillion-dollar homes. Supply continues to be low, and the number of qualified buyers remains high. So for now, I believe that until interest rates rise significantly, or we experience a large correction in the economic sector, or some other event beyond our control takes place, the sky will continue to be the limit.

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Stephanie Saunders Ahlberg has been a real estate agent for more than 30 years and joined Hill & Co. in 1983, where she has consistently been among the top 10 sales people. She can be reached at