Has the Bay Area housing market finally priced itself out of reach for, well, everyone?
According to a new survey of more than 100 economists and real estate experts, the answer is yes.
The panelists, who assessed the nation’s housing markets as part of a price expectations survey for the real estate website Zillow, said they expected the nation’s hottest real estate markets in 2020 to be in the South. Austin, Texas, took the top honor — a whopping 83% of experts believe it will outperform the national average of 2.8% housing price growth in 2020.
As for the nation’s worst real estate market in 2020?
The winner of that unfortunate designation is the Bay Area. San Francisco was at the top of the list for expected underperformers — 64% of experts believe it will underperform in 2020. It was closely trailed by San Jose: 61% of experts believe that city’s housing market will underperform.
A large proportion of those experts believed that the Bay Area will not just underperform, but actually see declining home values: 57% expect home values to fall in San Francisco, and about half expect the same for San Jose.
After the last several years of torrential real estate growth, underperforming or even falling home values in the Bay Area wouldn’t necessarily be a bad thing.
High home prices have placed homeownership out of reach for all but the wealthiest in the Bay Area. They also influence the cost of rent, which has grown far faster than the average Bay Area resident’s wages.
They affect construction and development costs, too. The Bay Area experienced 6.7% growth in construction costs in 2018: According to Turner Townsend’s 2019 survey of international construction markets, San Francisco was the world’s most expensive place to build.
Local housing prices flattened out last year, and construction costs slowed, too. The question is, will the Bay Area experience slower growth for the right reasons?
Unfortunately, the answer is no.
In a well-functioning housing market, housing prices would be falling because increases in demand would result in increases in new construction.
In the Bay Area, a major reason for the slowdown is that people are leaving — and taking their need for housing with them.
According to the state Department of Finance, California lost about 197,600 people to net domestic migration during the year that ended July 1. It’s no accident that Texas, one of the states to which California is losing the most residents, has historically had ample housing development at a much lower cost.
Losing these residents means losing their ideas, energy and contributions to the economy. High housing prices have also meant that fewer people can move here, where they’d have access to the Bay Area’s specialized jobs and markets — a situation that has exacerbated income inequality and will eventually eat away at our relative economic advantages.
The Bay Area housing market may also be suffering from the Trump administration’s ill-considered cap on state and local tax deductions, which have disproportionately affected home price appreciation in states with higher property taxes and mortgage interest deductions.
In both instances, flattening or even declining home prices in the Bay Area are the result of flawed public policy and unnecessary restrictions on growth. Without solutions, a pause in home appreciation might give the Bay Area a breather — but we’ll still be stuck with the problems that brought us to this place.
This commentary is from The Chronicle’s editorial board. We invite you to express your views in a letter to the editor. Please submit your letter via our online form: SFChronicle.com/letters.