Question

1.Please list and discuss what happens to the Supply and Demand forces in the market for rental housing in a typical, "popular" U.S. city (metro area) over a typical twelve month period (before March 2020)?

2. what happens to Demand? Why?

3. What happens to Supply? Why?

4What happens to price and quantity as a result over this one year time frame? Why?

5.In theory, what happens to the price and quantity of rental housing over a typical ten year period?

Answer 1

1. San Francisco consistently ranks among the most expensive real estate markets in the world, and it is one of the most densely populated cities in the U.S.

SF Home sales fell to their lowest levels since 2009 in April and May and were also down significantly in June. San Francisco Bay Area housing market had the strongest sales growth in August with a more than 10 percent surge in sales from last year, which is an amazing recovery from the lows in May. This trend continued in September as well with 34.2 percent sales growth as compared to last year.

SF Bay Area home prices have also been climbing due to strong demand and low supply. After reaching near-record levels in July, the median price of single-family homes posted an increase of 20.5% year-over-year in September — the second-highest median price increase in the state of California.

The price decreased by -0.7% as compared to the previous month (August). In the San Francisco county housing market, the median sold price increased by 0.1% to $1,665,000, $2000 more than August's median price. Sales of single-family houses rose by a whopping 90.2% YTY. Sales also increased by 8.4% MTM.

Aggressive buyers are bidding up prices but as more supply becomes available, there could be a correction in the market. At the moment, much of the Bay Area housing market is skewed toward sellers with a stronger demand as compared to the supply of properties for sale. In September, there was a drop of -31.9% YTY in the active listings.

The unsold inventory index is 1.9 months. However, the San Francisco county area has been among the most recovered markets for new listings or housing supply components. The number of active listings has also seen a dramatic increase over the last few months, outpacing the increase in listings going into contract.

A seller would always prefer scenarios that can yield a ratio of 100% or higher. On average, homes in the San Francisco area sell after 46 days on the market. The trend for median days on market has gone up since last month, and slightly up since last year.

According to Zillow's 2020 Urban-Suburban Market Report, in San Francisco, list prices have fallen 4.9% year over year and inventory has risen 96% with a flood of new listings. Higher levels of inventory, up 96% year-over-year following a flood of new listings during the pandemic, are sitting on the market in the city proper, a significantly larger jump than the surrounding suburbs.

In San Francisco, though, the softening is clear as sellers flood the market with their listings and buyers have not changed their pace to match. San Francisco had an unusually low inventory relative to other large cities before the pandemic. Regardless, the 96% year on year change in inventory marks a significant moment.

The same dramatic shift has not been seen in other large cities across the country, according to the report. New pending sales in the city are up only 1.7% year-over-year. An increasing no. of listings is cooling off the market. The result would be that sellers will have to compete for buyers.

The San Francisco Home Price Index has increased for the last 26 consecutive quarters. The all-time high in the San Francisco Home Price Index was 489.9 in the 3rd Quarter, of 2018. The Home Price Index indicates that the San Francisco Market is up 81% over the last 10 years.

Over the last thirty years, it is up 435%. The highest annual change in the value of houses in the San Francisco Real Estate Market was 28% in the twelve months ended with the 4th Quarter of 1979. The worst annual change in home values in the San Francisco Market was -12% in the twelve months ended with the 3rd Quarter of 2008.

Time Period	San Francisco Real Estate Appreciation
Last 5 Years	68%
Last 10 Years	81%
Last 20 Years	289%

The question now is what happens moving forward. These housing market trends and statistics can be positive or negative depending on which side of the fence you are — Buyer or Seller? While many have lost jobs, making them ineligible for a home mortgage, some sellers have taken their homes off the market. With the re-opening of the economy, the demand is rising again.

While buyer activity continues to be robust, the decrease in the number of active listings indicates that new sellers are still not willing to put their homes on the market until the pandemic or its threat is completely over.

There has been a short term impact of the Coronavirus pandemic on the Bay Area Housing Market—buyers withdrawing offers and sellers removing their homes from the market. The general uncertainty is playing a smaller role in recent weeks. There have been delays in closings due to financing issues as loan funding has slowed down.

The high-end buyer activity has pushed the median price to an all-time high. More affluent buyers having the greatest financial resources have been jumping back into the market to a greater degree than other segments.

Nationally, the showing activity has notably increased from the depressed levels in recent months, reflecting pent-up demand by prospective home buyers. The fall season has become as active as the summer buying season.

The minimum annual income required for owning a house in the San Francisco bay area in 2019 was $197,970. That's an increase of 119.1% since 2012 when affordability was at its peak. Homeownership is not rebounding anytime soon in San Francisco. By 2025 more than 60% of the population is estimated to rent. Housing affordability has been a consistent issue for first-time buyers over the last few years.

Note that the area already has an unemployment rate of 1.2 percent below the national average. The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 1.8 percent in December 2019, down from a revised 1.9 percent in November 2019, and below the year-ago estimate of 2.1 percent. This compares with an unadjusted unemployment rate of 3.7 percent for California and 3.4 percent for the nation during the same period.

San Francisco holds the position of the priciest rental market. The average rental income for traditional San Francisco investment properties is well above the national average. According to Zumper.com, nationally, median rents continue to tick up during the summer moving season. Overall, the national one-bedroom rent increased 0.3% to a median of $1,233, while two-bedrooms grew 0.6% to $1,493.

On a year-to-date basis, one and two-bedroom prices are up 0.7% and 1%, respectively. In SF, one-bedroom rent dropped another 2.4% last month to $3,200, while two-bedrooms decreased 3% to $4,210. Notably, both one and two-bedroom rents are now down over 11% since this time last year. However, San Franciso is still #1 among the top 5 rental markets in the nation.

The percentage of people renting in San Francisco is more than owners. Around 52% of the households in San Francisco, CA are renter-occupied while 47% are owner-occupied. The average rent for an apartment in San Francisco is $3,629, a change amounting to approximately 0% compared to the previous year, according to RENTCafé. More than 90% of the apartments can be rented for $2,000 or more while less than 2% can fall in the rent price of less than $1,500.

San Francisco's Real Estate Appreciation Rate is High. The entire bay area has one of the highest appreciation rates. A major reason San Francisco’s housing prices have climbed so high over the past decade is the city’s vibrant tech industry, which started booming in 2012 (a tax incentive aimed at attracting tech companies to the city over Silicon Valley). It now attracts a skilled workforce to the city while also driving up the demand for housing and the cost of living.

The data from NeighborhoodScout reveals that San Francisco real estate appreciated 91.99% over the last ten years, which is an average annual home appreciation rate of 6.74%. This figure puts San Francisco in the top 10% nationally for real estate appreciation. And within San Francisco, some individual neighborhoods’ home values have jumped by more than 100%, according to Trulia. Here are the five San Francisco neighborhoods that have had the biggest jump.

· Bayview: Bayview had a $424,900 median home value in April 2009, which went to $918,300 in April 2019.

· The Forest Knolls: In April 2009, the neighborhood’s median home value was $811,800, and it topped $1.7 million in April 2019.

· Bernal Heights: This neighborhood went from a median home value of $715,000 in April 2009 to $1,507,800 in April 2019.

· Mission: This East of The Castro neighborhood is in central San Francisco. The median home value was $699,900 in April 2009 and $1,460,800 in April 2019.

· Potrero Hill: This neighborhood lies in the East of the Mission District. It has a median home value of $734,200 in April 2009 and in April 2019 it was just over $1.5 million.

San Francisco has a track record of being one of the best long term real estate investments in the nation through the last ten years