Prices are already going down. House prices are determined by rents and rents have softened due to the large construction of luxury condos. I know this first hand because I’ve been a SF landlord since 2005, and most recently tried to find renters in May 2017 and December 2017.
For my 4 bedroom, 3 bathroom rental house in May 2017, I was receiving $9,000 a month. After 45 days on the market, the best two offers I got were for $7,500 a month = 16.7% decline. Instead of trying to rent it out for much less, I sold the house for $2,740,000 = 30X annual gross rent. I wanted to hold it forever, so my kids would have something to manage or somewhere to live just in case, but I just couldn’t take being a landlord anymore.
For my 2 bedroom, 2 bathroom condo rental, my previous tenants found the new tenants for me so I kept the rent flat at $4,200/month. In retrospect, I should have tried to raise the rent to $4,300 or $4,400 to cover the rising HOA and property taxes, but I didn’t want to risk losing them (landlord mentality now vs let’s raise the rent). The only “benefit” I got was not losing a month or more worth of rent looking for another tenant.
Here’s a more detailed chart highlighting the rents. They are down from the highs, but they have stabilized in SF and other cities (except for Chicago!). Property taxes in Illinois is top 3 in the nation, and you will freeze your buns of steel off for four months a year. Not a surprise.
I ended up reinvesting $500,000 of my SF rental house sale proceeds in June 2017 in much cheaper real estate in the heartland through real estate crowdfunding. The prices in non-coastal cities are closer to 10X - 15X annual gross rent (from 30X annual gross rent), and yields/potential returns are 8% - 15% vs. -5% to +2.5% in SF. In other words, for 1/5 the amount of risk exposure I’m taking, I can earn the same amount of income.
Buyers of SF real estate and coastal real estate should be pickier now. But knowing how people lose their heads bidding on properties, I suspect there will continue to be huge overbids at peak prices. Remember, leverage is your friend on the way up, and your mortal enemy on the way down.
If you only have your primary residence, then keep on holding and enjoying life. If you have two or more properties, you might want to consider selling because there are plenty of better money making opportunities out there.