San Francisco Bay Area Home Price

Market booms, crashes, recessions, recoveries & corrections over 35 years.

Financial and real estate markets have run in cycles for at least hundreds of years. Though varying in their details, causes, and effects, there are many similarities in how they play out, providing greater context to how markets work over time.

Many economic, political, social, demographic and environmental factors play roles in real estate markets, including interest rates, inflation, financial markets, new wealth creation (or destruction), housing affordability, employment, population migration, aging, governmental economic interventions, national and international crises, irrational exuberance, risk management, tax law, debt, consumer confidence, natural disasters, and, as we have recently seen, even pandemics.

Human psychology also plays a defining role, with optimism, confidence, and often, ultimately, "irrational exuberance" fueling upcycles. ("The world is different now. The old rules don't apply, and these boom times will continue forever.") Conversely, fear, doubt, and pessimism play a role in the shift to, and then underpin, down-cycles. ("The housing market probably won't recover in our lifetimes.") Whatever the phase of the cycle, people tend to believe it will last forever, but, of course, the nature of cycles is to keep turning.

It is extremely difficult to predict when different parts of a cycle will begin or end. Boom times, even periods of "irrational exuberance," can go on much longer than expected, or get second winds, with huge jumps in values. On the other hand, negative shocks can appear with startling suddenness, often triggered by unexpected events or factors that affect a variety of economic fundamentals, eroding confidence and causing shifts into slowdowns, "market corrections," or recessions of varying degrees and duration. These negative adjustments can feel like a switch being flipped, the slow deflation of a tire with a small puncture, or traffic going 120 miles per hour suddenly decelerating. Prices can flatten, adjust 5% to 10%, or, as with the subprime bubble, crash. (The subprime bubble and crash were caused by very unusual circumstances, as discussed later in this report.)

Note that different Bay Area markets often behaved very differently during the various cycles, depending on the factors at play. For example, San Francisco was hit hardest after the 1989 earthquake and during the early 1990s recession; then saw one of the highest appreciation rates during the dotcom boom, and a bigger price drop after it popped. It had a moderate-sized subprime bubble and crash; very high appreciation during the high-tech boom; lower appreciation compared to other counties during the pandemic boom, a larger sales price decline after the mid-2022 market correction, and a smaller rebound 2023-2025. In real estate, the devil is always in the details.