Some parts of the Bay Area’s real estate market are entering bubble territory and could pop in the next recession, a University of San Diego real estate expert said Wednesday.
The trend in the Bay Area and a few other cities where the market is being driven by high valuations of tech stocks counters what’s happening around the country, which is far from being in a bubble, said Norm Miller, the Hahn Chairman of Real Estate Finance in the School of Business Administration’s Burnham-Moores Center for Real Estate.
In research conducted along with a Hawaii-based consulting firm, Miller found that Denver, Miami and Portland, Oregon, plus Bay Area cities like San Francisco, Oakland, Berkeley and San Rafael, are also showing signs of being in a bubble.
“When the next recession hits, prices could decline in the ‘San’ markets, including San Francisco, San Rafael and San Diego,” Miller said. “Less a real estate bubble, this is more of a ‘tech bubble’ that will affect some real estate markets when the stock prices dip significantly.”
Miller and his colleagues monitored around 400,000 neighborhoods around the U.S., and about 20,000 zip codes.
“When home prices collapse, they do not do this evenly across a metro level, so it’s important not to focus too much on averages,” Miller said. “Those neighborhoods with the least equity or highest loan-to-value ratios tend to also be the most volatile.”
Miller said he sees median household income, the value of the U.S. dollar against foreign currency, a demand for housing in coastal regions with limited supply and a dependence on low interest rates as significant contributors to localized price bubbles in the seven markets.
Cover Photo Courtesy of Fibonacci Blue