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Friday, November 20, 2015

Report: SF Real Estate Due For "Correction" — and Venture Capital Crash

Posted By on Fri, Nov 20, 2015 at 1:17 PM

click to enlarge Your path to affordability!
  • Your path to affordability!

Is it a bubble? Is it a plateau en route to the summit of an ever-growing mountain? Whatever it is and whatever metaphor you use to describe it, the San Francisco real estate market is crazy. Our eye-popping housing prices are also due for "a correction" — as in a crash, according to experts who tie trends in housing prices to trends in venture capital.

This latest doomsday prediction comes courtesy of an Irvine-based real estate consultant and a San Francisco real estate brokerage. Consultant John Burns and brokerage Pacific Union tell Marketwatch that today's real estate market is eerily similar to the "dot-com bust of 2000."

While San Francisco has become and will remain to be "a permanently more expensive place to live," the near-doubling of the median price of a home from 2012 to today has been fueled "mainly by speculation" — and further, this steep increase can be tied to venture capital activity, Burns told the website.

So it's not an earthquake you need to beg for in order to afford that sweet little million-dollar cottage on Bernal — it's just a stock market crash.

A "correction" or crash in the real estate market has been predicted many times before, for several years. Our housing market is the country's most overvalued. Home prices far outpace incomes. But this take is a little fresh. 

Burns and Pacific Union took a look at the average size of a Silicon Valley venture capital deal over the past decade, and noticed that whenever venture capitalists were working overtime, home prices soared, as Marketwatch revealed in this handy chart.

  • Marketwatch
In 2010, with the economy still recovering from the subprime meltdown and recession, the average venture capital deal totaled under $7 million. Now, it's over $20 million — an increase of 240 percent, Burns said. 

Most every market is cyclical, and San Francisco's is no exception. Whenever the stock markets decided they had had enough and took a tumble, home prices took a tumble along with them. Which makes sense, given that it's an abundance of capital that allows for the purchase of a home.

This has been hinted at before, though not necessarily tied directly to venture capital deals. An earlier review from Paragon Real Estate showed that while San Francisco home prices do take almost regularly-scheduled tumbles, the trend has nevertheless been ever upwards.

click to enlarge case-shiller_simpl-percentages.jpg

But how are the investment markets doing? According to tech law firm Fenwick & West, which publishes quarterly analyses, they are slowing a tiny bit, but that slowdown is from a period of phenomenal growth.

For now, the markets are still doing gangbusters, which suggests that — for now — real estate here will still be out of reach for those of us not venture-funded.

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About The Author

Chris Roberts

Chris Roberts has spent most of his adult life working in San Francisco news media, which is to say he's still a teenager in Middle American years. He has covered marijuana, drug policy, and politics for SF Weekly since 2009.

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