Compass Special Report: Bay Area Home Price Appreciation since 1990

San Francisco Bay Area Home Price Appreciation Trends since 1990

The early 1990’s recession, the dotcom boom, subprime bubble and crash, market recovery and high-tech boom –and the pandemic

Important notes and caveats regarding the context and methodology of this report are detailed on the last page. All calculations to be considered approximate, good-faith estimates. How this report applies to any particular home is unknown without a specific comparative market analysis.

Compass Special Report: Bay Area Home Price Appreciation since 1990

After the Early 1990’s Recession: Recovery & Dotcom Boom

From 1990 – following the late 1980’s stock market peak, the S&L/junk bond crisis, and 1989 earthquake – through the recession to the mid-1990’s, Bay Area real estate markets generally
remained weak, with prices typically declining 5% to 11% within the period. In the middle of the decade, markets began to recover, with home prices subsequently accelerating rapidly during the
dotcom boom.

Once the dotcom boom got going, San Francisco and Santa Clara Counties, the centers of the phenomenon, saw the highest appreciation rates. Adjacent counties saw lower, though still substantial
increases, with rates in the next circle of counties stepping down further. The Bay Area generally saw appreciation percentages peak dramatically in year 2000, the height of the dotcom bubble. National home-price appreciation during this period was considerably lower than in the Bay Area.

The chart following this page illustrates these trends. When dotcom hysteria collapsed and the Nasdaq crashed, only the inner Bay Area Counties – SF and Santa Clara, and those adjacent to them – saw significant (though relatively short-lived) median price declines, while outer counties were generally unaffected. According to the Case-Shiller Home Price Index for the multi-county San Francisco Metro Area, the dotcom collapse affected high-price home markets the most, low-priced homes not at all, and the mid-price segment somewhere in between. More affluent homeowners – also tending to be concentrated in inner Bay Area Counties – were most affected. This is a relatively consistent trend historically: Higher-price home markets are much more sensitive to negative changes or simply uncertainty in financial markets.

Compass Special Report: Bay Area Home Price Appreciation since 1990

The Subprime Bubble

The subprime bubble and crash was an anomalous situation caused by predatory lending practices, the abandonment of underwriting standards, dishonest financial engineering on Wall Street, and irrational exuberance in financial markets. This led millions of borrowers to take on purchase and refinance loans unaffordable from the moment deceptive “teaser rates” expired. (We believe giving vast numbers of loans to unqualified borrowers, then using these junk loans to create the “A” rated securities which almost caused a worldwide depression to be anomalous. Perhaps we’re being naive.) When the music stopped, a crash in financial markets, and a flood of foreclosure and short sales created a fast, deep spiral of home-price declines.

The crisis resulted in large numbers of homes being sold for well below fair market value, which distorts the meaningfulness of median sales price changes during this period. Enormous median price declines occurred, sometimes exceeding 45% (see following charts). “Distressed” homes sold at unnaturally depressed prices, as these transactions often entailed desperate sellers; more hassle, time, uncertainty and risk for buyers; and the homes were often in significantly poorer condition than the norm.

Part of the definition for “fair market value” is that the seller is not in a situation of being forced to sell quickly. Sellers of foreclosures & short sales – whether homeowners or banks – were usually in urgent distress: This undermined fair market value and provided excellent deals for buyers and hedge funds.

Less expensive, less affluent, less financially sophisticated markets were hammered worst by predatory lending and subprime loans, seeing the largest bubbles and crashes. The most expensive/affluent markets saw much smaller bubbles, and smaller, but still significant price declines, probably caused more by the financial markets crash than by a relatively low number of distressed-home sales. Effects varied greatly by community within counties, generally correlating to cost/affluence: Prices in less expensive markets often dropped twice as much as in more affluent communities within the same county.

The next 2 charts look at this period first by price segment, then at the size of subprime-bubble price declines by county.

Compass Special Report: Bay Area Home Price Appreciation since 1990
Compass Special Report: Bay Area Home Price Appreciation since 1990

Recovery from the Subprime/Financial Markets Crash

Generally speaking, Bay Area real estate markets began their sustained recovery from the effects of the subprime-loan bubble/financial market crash/distressed-property crisis in 2012. An unusual mix of factors subsequently came into play behind the highest rates of appreciation:

  1. Whether the county was one of the three at the very heart of the high-tech, venture capital/start-up and IPO booms: San Francisco, San Mateo & Santa Clara
  2. Whether the county was adjacent to (or across a bridge from) the 3 central counties, but offered significantly more affordable home prices: Alameda was the prime example
  3. Whether the county was rebounding from a distinctly outsized crash following the subprime bubble, when their overall markets were utterly dominated by foreclosure & short sales: For example, Contra Costa (especially north county markets); Napa; Alameda (especially Oakland); and Sonoma

Marin County is an interesting case during this period from the 2012 recovery to the pandemic striking: An affluent, highly desirable market, it saw substantial appreciation, but 1) was not one of the
counties at the very heart of the high-tech boom, 2) though close to San Francisco, its housing wasn’t enormously more affordable (as was the case in Alameda County), and 3) Marin was one of the very affluent counties least affected by subprime loans. Thus, its appreciation rate during this period lagged other Bay Area Counties, which were boosted by 1 or more of the 3 factors listed above. But Marin’s appreciation dynamics would change dramatically with the onset of the pandemic.

The next chart illustrates approximate home-price appreciation rates from 2012 to Spring 2020

Compass Special Report: Bay Area Home Price Appreciation since 1990

The Pandemic Market

Since the pandemic struck in Spring 2020, Bay Area real estate markets have been affected by many diverse and shifting factors, some of them unique to the period. These include population-density and contagion issues; shelter-in-place and its varying effects on urban, suburban and rural environments; work-from-home upending the relationship between home location and workplace; trillions of dollars of free money issuing from state and federal governments; the historic plunge in interest rates; a remarkable, renewed boom in high-tech (especially affecting local giants like Apple, Facebook, Google); an astounding surge in stock markets (creating enormous amounts of new wealth); the rollout of vaccines; as well as other ecological, political, economic and social factors (fires, taxes, unemployment, family care, etc.).

These factors, as they applied in their various combinations to millions of households, prompted big changes in county-to-county migration; the comparative appeal of urban, suburban and rural locations; the desirability of different property types (houses, condos, apartments) and amenities (pools; yards, gardens and decks; home and lot size); a heightened attention to housing affordability between regions (now that many could work from anywhere); and surging luxury home and second-home sales (as many households were more affluent than ever).

All this brought about striking changes in market dynamics and appreciation rates. Some of the larger trends were significant population movements from expensive, urban markets to suburban and rural areas. In the immediate aftermath of the pandemic, this migration precipitated a distinct weakening of rental and condo markets (which subsequently saw recoveries in 2021, with the vaccine rollout). Some counties saw disproportionate increases in sales of larger, more expensive homes, a big factor in boosting median sales prices: This affects apples-to-apples comparisons of appreciation rates between counties.

All these recent changes will be subject to future changes, pursuant to factors listed above, some of which may shift or reverse, as well as to brand new and possibly surprising factors as well.

The following chart illustrates approximate appreciation rates from Spring 2020 to Fall 2021.

Compass Special Report: Bay Area Home Price Appreciation since 1990

The Long View: Appreciation 1990 – Autumn 2021

All Bay Area markets experienced extremely high home-price appreciation rates over the past 30 years, but the 3 counties with the highest were San Francisco, Santa Clara and San Mateo – unsurprisingly, the counties at the very heart of the high-tech booms over these decades. Each had an appreciation rate over 500% in their median house sales prices.

Next in line was Alameda County, adjacent to or across a bridge from the central three, but generally offering substantially more affordable home prices: Alameda County’s 30-year appreciation rate was over 465%.

Other Bay Area Counties saw median house sales price appreciation rates between 330% and 420%.

As a point of comparison, the CoreLogic S&P Case-Shiller Home Price Index – which does not use median sales prices in its calculations, but instead employs its own proprietary algorithm – calculates a national home-price appreciation rate of approximately 250% since 1990, though it should be noted that CaseShiller Index calculations often run somewhat lower than those based on median sales prices.

It is extremely difficult, if not impossible, to predict the timing of the almost infinite variety of economic, political and ecological events – occurring locally, nationally or internationally – that can affect financial and real estate markets.

A more detailed explanation of context, methodology and caveats can be found at the end of this report.

Compass Special Report: Bay Area Home Price Appreciation since 1990
Compass Special Report: Bay Area Home Price Appreciation since 1990
Compass Special Report: Bay Area Home Price Appreciation since 1990